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MNI RBI Preview - February 2023: +25bps Expected, But Will Stance Be Shifted To Neutral?

A 25bps hike seems likely, but more uncertainty as to whether RBI will shift to a neutral stance

Asia Bank - PreviewReserve Bank of India - PreviewHomepageEM Central Bank ReportsEM Central Bank PreviewEmerging Markets News

EXECUTIVE SUMMARY

  • The RBI is expected to deliver a 25bps hike at tomorrow’s policy meeting. This is the consensus from economists surveyed by Bloomberg, although a small number of forecasters expect the RBI to remain on hold. If a 25bps hike is delivered, which is also our expectation, then this would take the policy rate to 6.50%.
  • A case could be made for no change, given the likely headline CPI trajectory and the potential for the RBI to revise down its inflation outlook (6.7% is the projection for the current financial year, ending March 31). Still, an important offset comes from sticky core inflation pressures. So, whilst the real policy rate, against headline inflation is trending back into positive territory, against core inflation, it will only just be in positive territory.
  • The other focus point from the meeting is likely to RBI’s policy stance. There is a general consensus that ‘withdrawal of accommodation’ will be replaced with something more akin to ‘neutral’. A shift to neutral language around the stance of policy would leave the market expecting a pause in the tightening cycle at the next meeting and the RBI becoming more data dependent around future shifts. We would note though this is not a consensus market viewpoint, with some forecasters still expecting 'withdrawal of accommodation' to be maintained in terms of RBI language.
  • Full preview here:

    • RBI Preview - February 2023.pdf


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EXECUTIVE SUMMARY

  • The RBI is expected to deliver a 25bps hike at tomorrow’s policy meeting. This is the consensus from economists surveyed by Bloomberg, although a small number of forecasters expect the RBI to remain on hold. If a 25bps hike is delivered, which is also our expectation, then this would take the policy rate to 6.50%.
  • A case could be made for no change, given the likely headline CPI trajectory and the potential for the RBI to revise down its inflation outlook (6.7% is the projection for the current financial year, ending March 31). Still, an important offset comes from sticky core inflation pressures. So, whilst the real policy rate, against headline inflation is trending back into positive territory, against core inflation, it will only just be in positive territory.
  • The other focus point from the meeting is likely to RBI’s policy stance. There is a general consensus that ‘withdrawal of accommodation’ will be replaced with something more akin to ‘neutral’. A shift to neutral language around the stance of policy would leave the market expecting a pause in the tightening cycle at the next meeting and the RBI becoming more data dependent around future shifts. We would note though this is not a consensus market viewpoint, with some forecasters still expecting 'withdrawal of accommodation' to be maintained in terms of RBI language.
  • Full preview here:

    • RBI Preview - February 2023.pdf