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MNI RBI Preview - September 2022: Risks Tilted Towards 50bps Hike

RBI

EXECUTIVE SUMMARY

  • We see the balance of risks tilted towards a 50bps hike tomorrow from the RBI, given the current inflation/growth backdrop. The latest inflation print was firmer than expected at 7% y/y. Since peaking in April (7.80%), consumer price pressures have moderated, albeit remaining fairly sticky around the 7% level. We remain comfortably above the upper inflation target limit for the RBI of 6%.
  • On the growth front, the Q2 GDP report, whilst delivering a headline miss, had solid underlying details. Partial growth indicators have been mixed in recent months, but aren’t suggesting a sharp slowdown in growth. External financial market developments have also turned more hawkish since the last policy meeting.
  • This backdrop argues for a 50bps move, with the key objective of bringing inflation risks under control, likely to outweigh growth concerns. If the real policy rate was closer to flat (currently -160bps), the case for a smaller move would arguably be stronger.
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