India: RBI kept the steady hand amidst a dovish tilt – UOB

Economist at UOB Group Barnabas Gan assesses the latest monetary policy meeting by the RBI.

Key Takeaways

“The Reserve Bank of India (RBI) kept its policy repo rate and reverse repo rate unchanged at 4.00% and 3.35% respectively in its Jan monetary policy meeting.”

“Policymakers have shifted from its relative positive tone seen in 4Q21 to a dovish and cautious one. RBI pencilled GDP growth of 7.8% for FY2022/23, as compared to the government forecast range of between 8.0% and 8.5% in the latest economic survey.”

“RBI views that headline consumer prices will only expand by 4.5% in FY2022/23, from Dec 2021’s 5.59% y/y climb. We think there is a substantial upside risk to the official outlook based on the higher oil prices to-date.”

“We think that GDP growth will stay resilient for the upcoming year, but the looming inflation risks in FY2022/23 will be a persuasive factor for RBI to finally jump on the hike wagon and introduce its first rate hike in 2Q22 to 4.25%, and by another 50bps for the rest of 2022 to bring the policy rate to 4.75%.”