Udaipur : Commenting on the Monetary Policy committee decisions Sakshi Gupta, Principal Economist, HDFC Bank has said that, “We expect cumulative rate hikes by the central bank to the tune of another 50-75bps over the next few months. The risk of a more aggressive rate hike cycle hinges on whether the current West Asia conflict and rise in oil prices continue to linger on for longer. We expect inflation to average at 5.4% in FY27 with 6.3% expected in the current quarter. On growth, we hold on to our expectations of 7.1% growth in FY27.”
On liquidity the RBI as we expected abstained from announcing any new measures and we expect the central bank to continue with sell/buy swaps, VRRRs and if needed OMOs over the coming weeks to reduce the excess liquidity surplus. Moreover, as we move into the festive season, higher currency in circulation is also likely to reduce liquidity balances.
On the bond market, the curve is expected to flatten as rate hikes and normalisation of liquidity conditions pushes up short term rates ahead. The RBI began its rate hiking cycle in lockstep with major global central banks. The decision came on the back of rising domestic inflation risks while growth momentum remains resilient. The change in stance to calibrated tightening signals that today’s rate hike is the beginning of a rate hiking cycle and not a onetime move. The RBI’s tone and revised macro forecast tilted on the hawkish side with the growth forecast revised up by 40bps to 7.1% and inflation revised up to 5.2%. for FY27.
