RBI’s Patient Policy Signals Stability, Says HDFC Bank Economist

Mumbai | Maharashtra — Against the backdrop of an uncertain geopolitical scenario, the RBI prudently chose to be patient instead of being reactionary in its policy today, keeping its stance and the policy rate unchanged. The policy tone was balanced and wait and watch, abstaining from indicating any hawkishness. As we expected, no extreme or out of box measures were announced at this point.

The central bank recognised the upside risks to inflation that have already emerged, upping its forecast for FY27 (due to higher energy costs) while being cautious on growth. That said, this outlook was balanced by the re-iteration of the fact that the economy was witnessing strong fundamentals prior to the war which enhances the absorptive capacity of the economy to the current West Asia shock. Moreover, the RBI indicated that inflation starting points are also comfortable, implying that inflation could remain within the RBI’s target band in FY27.

Comments around the rupee also showcased strong confidence building by the RBI to manage any exaggerated moves, while maintaining its stance of not targeting particular levels of the rupee.

We estimate inflation at 4.9% for FY27 and growth at 6.8-7%, assuming the current conflict is short-lived and the current ceasefire holds. The policy rate could remain unchanged through FY27 under this scenario.  The rupee could find some stability over the coming days along with some cooling off in the 10-year bond yield with a 6.8-7% range likely to emerge.