Goldman Sachs & J.P. Morgan Don't Expect Any More RBI Hikes

Sell-side views post yesterday's on hold outcome from the RBI:
Goldman Sachs: "The RBI MPC unanimously voted to keep the policy repo rate unchanged at 6.50% in the April meeting given global uncertainty, and to assess the cumulative effect of rate hikes undertaken so far. The consensus expectation (including GS) was a 25bp hike. The MPC, however, retained the tightening policy stance on liquidity in a 5:1 vote (from 4:2 vote earlier). It also kept the door open for further tightening if required, as the Governor emphasized in the statement "the decision to pause on the repo rate is for this meeting only" and said in the press conference that today's decision was a "pause not a pivot". The RBI marginally increased the GDP growth forecast for fiscal year 2023-24 (FY24) to 6.5% (from 6.4% earlier), and marginally reduced the inflation forecast to 5.2% yoy (from 5.3% yoy earlier), but highlighted "unyielding core inflation". We expect headline CPI inflation to come in below 6% (the upper end of the target band) for the rest of the year, and now expect the RBI to remain on hold till end-2023 (vs. our earlier forecast of a 25bp rate cut in the December policy meeting), while maintaining tight banking system liquidity. There is some risk of renewed tightening in CY23 if commodity prices rise more than expected. For 2024, we now forecast two repo rate cuts of 25bp each in Q1 and Q2 CY24 (vs. Q2 and Q3 earlier)."

J.P. Morgan: "Any hold was always going to be accompanied by hawkish language to keep future options open, and therefore the hawkish tone that accompanied the pause did not come as a surprise. For starters, the MPC maintained its “withdrawal of accommodation” stance. The Governor then emphasized “the decision to pause on the repo rate is for this meeting only” and later added “The MPC will not hesitate to take further action as may be required in its future meetings” – a sentiment that was reinforced in the MPC statement. That said, today’s hold marks the end of the hiking cycle, in our view, on account of the anticipated inflation trajectory. Helped by favourable base effects, headline CPI – which has averaged 6.5% over the last six months – is expected to gap down to the low 5% handle over the next six months."