MNI RBI Preview: April 2023: +25bps Likely, Focus Again On RBI Policy Stance

EXECUTIVE SUMMARY

• The main rationale for a further rate hike is India’s inflation backdrop. The early 2023 trends have been titled to renewed upside pressures. For February inflation, the headline printed at 6.44% y/y, so still above the RBI’s 2-6% target band. After dipping briefly through 6% y/y at the end of 2022, inflation pressures have recovered. A Bloomberg core CPI measure also remains elevated, printing at 6.23% y/y for February. This is down from 2022 highs, but is not showing a definitive downtrend, which is likely to factor into RBI thinking. Inflation is also running above RBI’s projections for the first part of 2023. Base effects should help ease headline momentum as we progress through Q2 though.
• Recent global banking turmoil, coupled with signs of slowing momentum in the US economy, could also factor into RBI thinking. External headwinds look set to grow for India, although we have already seen a sharp slowdown in export growth (last at -8.8% y/y for February). These concerns may be more of a headwind for further RBI action if domestic indicators of growth weren’t holding up, but they are.
• A number of sell-side analysts also expect this to the be the final hike of the cycle, or at least a pause post this meeting. The next policy meeting will be on June 8. This will leave the focus, tomorrow, on whether the RBI statement shifts to a more neutral stance, as opposed to continuing to focus on withdrawal of policy accommodation. In this respect the RBI faces a delicate balancing act.
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RBI Preview - April 2023.pdf