Bank of America Securities India in a pre-policy note on Monday said it expects the RBI-MPC to stay on hold on all rates on April 8 and retain its accommodative stance. But the central bank will be pushed to revise upwards its CPI inflation forecast due to supply-side issues even as downside risks to growth rise.
The brokerage is also expecting the RBI to announce measures to ensure non-disruptive execution of the government borrowing programme, which has frontloaded the debt raising by choosing to raise as much as 59.1 per cent or Rs 8.45 lakh crore of the full-year gross borrowing of Rs 14.3 lakh crore in the first half, which many feels will delay policy normalisation.
The comfort provided by the expected improvement in inflation was the anchor for the super-dovish February policy.
Since the February meeting, Brent crude has gone up 21 per cent, domestic petrol, diesel pump prices are up 6.5 per cent, domestic LPG cylinder price is up 6 per cent, and commercial LPG is up 12.5 per cent, and edible oils are up around 12 per cent.
Against this backdrop, the report said the RBI is expected to revise up its FY23 average CPI inflation forecast from 4.5 per cent and sight downside risks to their real GDP growth forecast of 7.8 per cent.
The brokerage expects FY23 average CPI inflation at 5.5 per cent, with a 30 bps upside risk and real GDP growth at 7.9 per cent with downside risks.
But it does not see the RBI resorting to quicker or sharper policy repo rate hikes as it remains steadfast in supporting growth and quoted governor Shaktikanta Das‘ recent remark that “if you start initiating a premature demand compression through monetary policy action, then it will be counterproductive. Monetary policy addresses the demand side issues”.
The agency expects the RBI to turn neutral in the June review alongside raising the reverse repo rate by 40 bps, normalising the policy corridor and delivering the first repo rate hike of 25 bps in August.