Market Live Updates: Indices trade in flat amid volatility; UltraTech top gainer, RIL

August 05, 2022 / 01:52 PM IST

Dharmakirti Joshi, Chief Economist, CRISIL:

Unsurprisingly, RBI’s Monetary Policy Committee raised policy rates by 50 bps, bringing repo rate at 5.40%, 25 bps above the pre-pandemic level of 5.15% in February 2020. The frontloading of the repo rate hike was needed as inflation, despite some softening, is still way above the upper tolerance limit and monetary policy impacts it with a lag.

Generalised inflationary pressures and risks and uncertainty on the global front meant that the RBI could not lower its guard. The MPC expects Consumer Price Index (CPI)-based inflation to remain above 6% for the next two quarters as well, keeping this fiscal’s forecast unchanged at 6.7%. Despite challenging environment, the RBI sees domestic economic recovery improving and getting broad-based as it kept GDP growth forecast unchanged at 7.2% for this fiscal.
Friday’s rate hike, although aimed at inflation, also partly addresses spillover risks from an aggressive stance of the US Federal Reserve and other systemically important central banks.

The Fed is unlikely to change its position till it sees a decisive decline in inflation. It remains vigilant of financial market volatility despite the recent relief in some segments.

We retain our growth and inflation outlook for this fiscal at 7.3% and 6.8%, respectively, and expect the MPC to raise the repo rate by another 25 bps during its September review meeting.  Beyond that, actions will be guided by incoming data.