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The Reserve Bank of India's (RBI) decision to keep the policy repo rate unchanged at 5.25 per cent and retain its neutral stance was on expected lines, while the central bank's commentary appeared more balanced compared with its June policy, brokerage firm Equirus said on Wednesday.
In its assessment of the RBI's August monetary policy, Equirus said the central bank appeared more comfortable with domestic economic fundamentals, with the growth outlook improving and signs of broad-based inflationary pressure remaining limited. The brokerage noted that the Monetary Policy Committee (MPC) unanimously voted to maintain the repo rate at 5.25 per cent and retain the neutral stance. It said the RBI's inflation assessment was notably less cautious than in June, when the Governor had warned that inflation could generalise through second-round effects on expectations and wages. "In August, the RBI steps that back explicitly - inflation is up but with 'little sign of generalisation so far', core stays benign, and the up-move 'is not getting broad-based'," Equirus said. The brokerage highlighted that the RBI lowered its FY27 Consumer Price Index (CPI) inflation projection to 5 per cent from 5.1 per cent earlier, while cutting its core inflation forecast more sharply to 4.3 per cent from 4.7 per cent. Q1 FY27 inflation came in at 3.9 per cent, below the central bank's earlier estimate. On growth, Equirus said the RBI's decision to raise its FY27 real GDP growth forecast to 6.7 per cent from 6.6 per cent, while shifting the risk assessment to "evenly balanced" from "firmly to the downside", marked a clear improvement in its outlook. The brokerage attributed the stronger outlook to resilient domestic activity, robust corporate performance, expansionary purchasing managers' indices and a rebound in merchandise exports. However, it flagged a deficient and uneven monsoon, El Nino conditions and renewed West Asia tensions as key downside risks. Equirus said improved capital flows have also eased concerns over pressure on the rupee. Foreign portfolio investors recorded net inflows of USD 7.1 billion during June-July, while foreign exchange reserves recovered to USD 692.9 billion as of July 31. Equirus expects the RBI to hold rates in October as well, but sees a possibility of a 25-basis-point hike in Q4 FY27 to move the real policy rate closer to neutral, particularly if inflation begins showing broader-based pressures. (ANI)
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