Still More Work To Do

As expected, the RBI raised the policy rate to 5.90% (a 50bps increase). The cash reserve ratio was left unchanged at 4.50%. Based off Governor Das's statement the central bank still has more work to do in terms of getting the policy stance to more appropriate levels.

• The near-term inflation outlook, for the second half of the current fiscal year (ending March 2023), is projected at 6%, similar to previous estimates. For the whole of the current financial year the inflation projection was kept at 6.7%, for the next financial, also unchanged at 5%.
• Governor Das noted the real policy rate (-110bps after today's move), tails the 2019 experience. In that year, real rates were strongly positive for much of the year. This suggests that further work will be done to get real rates back close to 0bps. The next RBI meeting is on 7^th of December.
• Current market pricing has the policy rate just over 6.5% in 3 months’ time, and near 7% in 6 months’ time.
• On growth, the current financial year forecast was nudged down to 7% from 7.2% previously. Das presented an upbeat domestic outlook though, with external headwinds the main threat.