Monetary Policy | RBI keeps repo rate unchanged — here's the impact analysis by top economists

The Governor noted that the headline inflation rose in June and is expected to surge in July as well as August due to vegetable prices. However, vegetable price shocks may reverse quickly, he said.

Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank, highlighted that the recent policy decisions have largely aligned with the predictions made by analysts.

“Broadly, if I look at the policy, decisions have been broadly in sync with what we have been anticipating. Our revised estimates for inflation after the vegetable led inflation has been 5.4 percent. So the headline number does look in-line but I think internally, if I was to look at the quarterly profiles, the 6.2 percent does have an upside risk. I think the near term risk to this quarter is much higher. While as per the last quarter estimates RBI has preferred to keep that unchanged, my sense is that it will be revised downwards eventually. So internally, I think there is much more upside to the near term,” she said.

CS Setty, MD of SBI, provided an in-depth analysis of the policy rates, noting that they fell within the anticipated range. However, Setty also pointed out an unexpected development in the form of incremental Cash Reserve Ratio (CRR). Despite this, he mentioned a positive aspect – the forthcoming review of the CRR on September 8. While Setty acknowledged this impending review, he expressed his belief that the overall impact on liquidity might not be significant.

“The policy rates are on expected lines. Of course, there are surprises on incremental CRR. The only positive point is that it is going to be reviewed soon on September 8. But I don't think there's going to be significant impact on the liquidity situation in the system, that is what my assessment is,” he said.

Rajiv Anand, Executive Director at Axis Bank, turned the spotlight on the broader economic scenario, emphasising the resilience of underlying growth and robust credit demand. He identified a key challenge for the banking sector —the ongoing competition for deposits.

“I think the underlying growth continues to be strong, credit demand continues to be strong. What we have to work through is the continued fight for deposits, and that really is going to be the theme for the rest of the year,” he mentioned.

Rajeev Radhakrishnan, CFA, Head of Fixed Income at SBI Mutual Fund, shared his insights on the RBI's approach to liquidity management. He noted that among various potential measures, addressing liquidity appeared to be the path of least resistance. However, Radhakrishnan emphasised that this move was likely a one-off, incremental step.

“When you look at the overall set of measures that the RBI could have done, addressing liquidity, I think probably was a path of least resistance and even within that, it is largely a one off move on an incremental basis. So to that extent, I think from a bond market perspective, even that hawkish commentary and a potential upward revision in CPI estimates are broadly factored in. It is in line with the broader expectations that the market had getting into the policy,” he said.

Shifting the spotlight to inflation, Kaushik Das, Chief Economist at Deutsche Bank, discussed the central bank's inflation forecast. Das expressed a contrasting perspective, suggesting that inflation might surprise on the lower side compared to the RBI's projections. While the RBI forecasted a 6.2 percent inflation rate for July and September, Das put forth his forecast of around 5.8 percent. He anticipated a noteworthy disinflation trend, with a sharp decline in inflation by September, leading to a series of surprises to the downside.

“I think inflation now will surprise to the lower side compared to the forecast that they have given. So they have given 6.2 for July, September, as I said  before, my forecast is about 5.8. So I think by September, you will see a very sharp disinflation, and then the numbers will keep on surprising to the downside,” he mentioned.