The expected pause decision of the MPC yesterday came laced with an unexpected slightly hawkish message on inflation and the market reacted negatively to it. However, it is important to appreciate the fact that the MPC is playing it safe by trying to anchor inflation expectations. The most important factor determining the trajectory of inflation, going forward, will be the monsoon. If the monsoon is normal food inflation will remain under control, facilitating a rate cut by December 2023. Therefore, the progress of the monsoon should be keenly watched.
Latest news from the mother market US is that initial jobless claims have increased. This is slightly positive from the market perspective since it indicates that the US economy is slowing down in response to the Fed’s tight monetary policy. So, it is possible that the Fed might pause in the coming June policy meeting, boosting market sentiments. The Nifty range has moved up to 18500-18700 now.
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