In line with our expectations, the RBI’s Monetary Policy Committee (MPC) maintained a status-quo on key policy rates and the accommodative policy stance. This shows a dovish leaning of the MPC as the inflation outlook has deteriorated while economic recovery has surprised positively. The RBI revised its inflation projections upward to 6.8% YoY and 5.8% in Q3 FY21 and Q4 FY21 respectively from 5.4-4.5% in H2-FY21 earlier. The new projection still leaves space for a rate cut in H1-FY21; however, we now accord a low possibility of another rate cut. Given the better than expected recovery in recent data, the RBI upgraded FY21 economic growth projection to -7.5%YoY from the previous forecast of -9.5%. However, the RBI believes that “signs of recovery are far from being broad-based and are dependent on sustained policy support”. This underlies the continuation of an accommodative stance and support towards the more stressed sectors as seen in the expansion of the on-tap LTRO to more sectors.
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