Hikes, But Inflation Battle Not Over Yet

The RBI hiked rates by 35bps as expected. This pushes the policy rate to 6.25%, highs back to early 2019. Das's policy speech has come across as somewhat hawkish. Inflation pressures may have to subside more quickly than expected for the RBI not to take further policy action in 2023.

• The RBI governor noted even after today's policy adjustment real rates are still negative and policy is still accommodative. He also noted core inflation pressures are sticky and that the battle against inflation isn't over.
• The central bank did nudge down its growth expectation for the current financial year (ending March 2023) to 6.8% from 7.00%, but Das still painted a fairly resilient growth picture, outside of external headwinds. Inflation projections were kept basically unchanged at 6.7% for the current financial year.
• Indian bonds have sold off post the speech, with the 5-10yr bucket up by 3-4bps in yield terms. The 10yr yield is back to 7.28%. USD/INR has tracked lower after opening at 82.67. The pair was last at 82.50. Indian equities are flat at this stage.
• Note the next RBI meeting will be held on the 8th of February 2023.