Sell-Side Views Post Yesterday's RBI On-Hold Outcome

Goldman Sachs and J.P. Morgan see the RBI on hold going forward post yesterday's RBI outcome.

• Goldman Sachs: "Going forward, we expect headline inflation to remain below the upper end of the RBI's target band of 2%-6% for the rest of the year and our forecast is closely aligned with the RBI. There are some upside risks to food inflation due to uncertainties around the spatial and temporal distribution of monsoon, while the decline in core inflation has evolved in-line with our expectation so far. We continue to expect the RBI to remain on hold till end-2023, as the Governor emphasized the MPC's goal is to achieve the inflation target of 4.0% yoy, and reiterated that "there is no room for complacency" in the press conference. There is some risk of renewed tightening in H2 CY23 if commodity prices rise more than expected."
• J.P. Morgan: "As we had previously noted, CPI inflation is tracking 60-70 bps below the RBI’s April forecast for April-September. Unsurprisingly, therefore, the RBI marked down its CPI forecast for the first half of the fiscal year, with the current quarter lowered from 5.1% to 4.6% and next quarter reduced from 5.4% to 5.2%. The RBI retained its second-half forecast of 5.4% in 4Q23 and 5.2% in 1Q24. We still see some downside risks in the current quarter and next, projecting inflation at 4.4% this quarter and 4.7% next quarter (50 bps below the RBI’s forecast) but much will depend on the outturn of the monsoon. The bigger gulf, however, is on growth, with the RBI projecting FY24 growth at 6.5%, 100 bps above our forecast of 5.5%.
  
  Today’s developments and forecast changes simply reinforce our belief that the RBI will be on hold for the next few meetings. "