Here is your guide to economists’ comments on RBI MPC MinutesThe minutes of the latest RBI monetary policy committee (MPC) meeting released on Friday showed the central bank has shifted its focus to fighting surging inflation even as growth worries remain.Here is your guide to economists’ comments after the RBI MPC Minutes release:Barclays’ Rahul Bajoria, Chief India Economist:”The minutes of the RBI’s April MPC show members becoming more concerned about inflation, suggesting scope for the RBI to pivot its policy stance. The minutes do not, in our view, indicate an aggressive rate hiking cycle.””Minutes released…show MPC members expressing concern over the rising inflation trajectory, even as some members stressed the predominantly supply-side drivers of the current spike. Overall, members noted that it was necessary to commence the withdrawal of the current extraordinary accommodative stance in order to reaffirm the MPC members’ commitment to ensuring inflation stays within the target band over the forecast horizon.””There were some hints on the future policy trajectory. Dr Mridul Saggar suggested that rates could stay below neutral rates in the foreseeable future. On the other hand, both Dr Varma and Governor Das stressed the dynamic nature of the situation, and the need to remain vigilant and be data-dependent.””Overall, we felt that the tone expressed in the minutes was not as hawkish as the comments in the post-policy conference suggested, and could perhaps be interpreted as the MPC not yet signaling an aggressive rate hiking cycle. However, given that the minutes were drafted before the March CPI data, they may not completely capture the most current reaction function.”Emkay Global Financial Services:Sub-headers in the research read: “Withdrawal of accommodation finds consensus among MPC members. Fighting the comeback of old foe – inflation. Doves have bid goodbye; Brace for June hike.””The minutes of Apr ’22 policy reaffirmed the MPC’s reaction function pivot, reflecting its discomfort with inflation amid changing macro realities. The persistent inflation narrative saw coherence among members, with most believing that, irrespective of the source of inflation (supply or demand side), current high levels require a policy tilt and taming of inflation expectations.””Even though the economic outlook is being impacted by huge global crosscurrents and shifts – the net impact of which is still hard to gauge, the RBI’s rhetoric has moved in a hawkish direction.””However, most members believe that, amid economic normalization, the gradual rebalancing of liquidity and the move toward equilibrium real rates are consistent with non-inflationary growth. But Dr. Saggar here also reckoned that, amid a flat Phillips curve, tackling inflation becomes harder as it may call for a larger output sacrifice, and thus a deft policy and mix of tools are needed.””With inflation realities worsening, a hike is likely in Jun ’22 -with or without stout and formal stance change. FY23 could see rates go up by 100bps. The terminal rate may be a tad higher than 5.25%, with the RBI now showing its intent to keep real rates neutral in the medium term.””With the reaction function pivoting back to inflation overgrowth as a policy priority, the bias is clear. This also implies that policymakers no longer think the output sacrifice required to tame supply-driven inflation will be very high. Thus, to that extent, the RBI is no longer a stout dove and the reaction function is now evolving with fluid macro realities.”Nomura’s Sonal Varma, Chief Economist, and Aurodeep Nandi, India Economist:Sub-headers in the research read: “Inflation – supply or demand does not seem to matter anymore. Neutral stance in all but name. Post pandemic nuances. Policy normalisation ahead… move towards neutral policy rates. No clear forward guidance on pace of adjustment.””The MPC minutes confirm that India is at the cusp of a policy normalisation cycle, with a 25bp rate hike in June. The MPC appears to be looking to move towards a neutral policy rate to achieve ‘non-inflationary growth’, although its level is not defined, and the pace of adjustment is unclear.” At this stage, the RBI seems focused on removing the ultra-accommodation in place, with gradual 25bp moves, although we believe a faster 50bp hike in subsequent meetings (August/October) should not be ruled out. We think this is because the minutes are somewhat stale, and the upside surprise in the March CPI print indicates the RBI’s freshly increased inflation projection of 5.7% – from 4.5% for FY23 is already too low (Nomura: 6.6%).””We continue to expect a 25bp rate hike in June, 200bp in cumulative rate hikes by Q3 2023 -terminal repo rate of 6%, with risk that rate hikes could be even more frontloaded, given that monetary policy often works with long legs.”
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