Goldman Sachs On RBI Minutes

Goldman Sachs expects the RBI to stay on hold for the remainder of this year, but there is some risks of further tightening if inflation surprises on the upside.

" All three MPC members from the RBI -- the Governor, the Deputy Governor and the Executive Director -- firmly reiterated the MPC's commitment towards the 4% inflation target in the minutes of the June 8 RBI policy meeting. Governor Das stated that even with inflation within the RBI's target band (of 2% - 6%), "our job is only half done" and "our fight against inflation is not over". The Deputy Governor highlighted upside risks to inflation in H2 FY24[1] and stated that "holding the (policy) rate unchanged (in the June meeting) should not be interpreted as the interest rate cycle having peaked". The MPC also retained the policy stance of "withdrawal of accommodation” with five votes in favor, mainly as banking system liquidity was in surplus, and to align headline inflation with the 4% target. We expect headline CPI inflation to remain below 6% (the upper end of the target band) for the rest of the year, and continue to expect the RBI to remain on hold till end-2023, as a base case. There is some risk of renewed tightening in H2 CY23 if an inadequate monsoon in India causes upside risks in food prices to materialize, core services inflation trend higher, or, other commodity prices rise more than expected."