RBI's policy outlook is stable, narrative dovish: Kotak Mahindra Bank

10 Feb 2022 , 03:25 PM

The RBI’s monetary policy committee (MPC) has continued with an “accommodative stance” while maintaining status quo on key rates. The RBI has signalled that it will continue to support economic growth as long as required.

Policy outlook is stable but the narrative is slightly different from what the markets had expected. The real GDP growth for FY23 – seen at 7.8 per cent – seems conservative. Retail inflation is expected to peak in Q4 FY22 to 5.7%. However, it is likely to glide down over the next few quarters and is projected at 4.5% in FY23. While risks of higher crude prices remain, overall growth and inflation is estimated to be stable through FY23.

The rigour of vaccination, enhanced capex and infrastructure build-out by the government would ensure increased return to normalisation even while demand pull is still relatively muted.

MPC’s key mandate is to keep inflation within its target band of 4% to provide the necessary liquidity support for sustained domestic recovery. With RBI sending dovish signals, interest rates are likely to be stable in the short-term and RBI is likely to adopt a calibrated approach.

The author of this article is Shanti Ekambaram, Group President — Consumer Banking, Kotak Mahindra Bank Ltd

The views and opinions expressed are not of IIFL Capital Services, indiainfoline.com