The Reserve Bank of India's Monetary Policy Committee (MPC) is holding a three-day meeting at a time when the nation is grappling with contrasting economic indicators. Market participants are eagerly awaiting the committee's decision, with a unanimous 'status quo' expectation dominating the sentiment.
Citizens MPC predicts that the RBI MPC is likely to have a neutral to hawkish stance in August policy with a focus on tomato inflation and global macro uncertainties.
Meanwhile as per a CNBC-TV18 poll, despite the ongoing turmoil in global economic waters, there is an air of cautious optimism surrounding the Indian economy. The recent surge in vegetable prices, a matter of concern for households across the country, has been accompanied by a moderation in fuel and core inflation. The anticipation among market experts is palpable, with every respondent in the CNBC-TV18 poll predicting that the RBI's MPC will opt to prolong the ongoing policy pause, keeping the repo rates untouched at 6.5 percent.
So at this expectation, what do the experts think will move the market?
Abhishek Upadhyay, Senior Economist, ICICI Securities PD, told CNBC-TV18 that the focus will be on what the Reserve Bank of India (RBI) says about H2 inflation.
"In July, we expect a 6.8 percent kind of inflation, and inflation for July-September is tracking above 6 percent. But from a Monetary Policy standpoint, I believe they will be focused on what the Reserve Bank of India (RBI) says about H2 inflation and also on what projection they give for April-June 2024 inflation which will be put out in the Monetary Policy document this time," he said.
He further added that RBI might revise overall inflation by 20-30 basis points to 5.5 percent in H2
"Possible that for H2, the RBI revises forecast by 20-30 basis points higher towards 5.5 percent or so. And for April-June again, maybe they give a number between 4.5 percent and 5 percent. But no material change. These numbers would signal and provide a cue to bond markets that RBI is likely to be on prolonged pause rather than leaning towards a hike, which is what is priced into the swap curve currently, which was indicating an opportunity for a hike by the December policy, which we still consider to be quite a low-probability event," he said.
R Sivakumar, Head-Fixed Income, Axis AMC, said that markets will wait for the next few months before that kind of a movement on yields happens.
"If you look at the global environment for yields, it's definitely on your side. The underlying worry is that central banks are not done tightening — the move in Japan to lose yield curve controls again has pushed yield expectations higher. So in the very near term, even if RBI holds its policy rates and stance, I don't think we should see a significant move in yields. I think markets will wait for the next few months before that kind of a movement happens," he said.
RBI's growth outlook will also be an important factor to watch out for. "I think a lot of the reasons that RBI has maintained the monetary policy stance the way it has over the last few years is to ensure that growth is supported. So, because of the global environment, we saw the trade data out of China, and we've seen some incremental numbers in the US indicating some kind of slowdown, I think in the second half of the year, we should expect RBI to tone down its language. It's too soon for tomorrow, but it's certainly something that you should be watching for in the next year," said Sivakumar.
Further, he mentioned that if RBI changes its statements on liquidity then that will also be something that the market will watch out for.
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