RBI’s last meeting for FY24 is unlikely to surprise, at least with its rate action. RBI has maintained disinflationary environment in last one year with tools other than rate action, mainly through tight liquidity situation. However in the last one month, systemic liquidity continued to remain deficit but with an easing bias (INR 3.5tn in Jan’24 to INR 1tn now). Easing liquidity conditions aided in easing call money rates below the Repo rate (6.46% vs. 6.5% Repo). Headline inflation continues to remain elevated due to food prices, while sustenance of core inflation below RBI’s target needs to be seen. We believe that monetary restriction is warranted in the near term, considering macro headwinds to inflation. Hence we expect an unchanged stance with a status quo on rates by MPC, Apr’24 would be the right time to turn ‘neutral’ while rate cuts should commence at the start of H2 CY24. More members from the MPC are expected to mellow down their tone and prepare the markets for the last leg of the rate cycle.
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