As widely anticipated, the RBI held the policy rate at 6.5% and kept the stance also unchanged at “focus on withdrawal of accommodation”. We assess the tone to be hawkish given the strong reiteration of the need to remain vigilant of the evolving inflation outlook. The temporary requirement for SCBs to maintain an incremental CRR of 10% on the increase in their net demand and time liabilities between May 19 and July 28 is expected to facilitate quick draining of excess liquidity by ~ Rs.1 lakh crore. For the outlook, the RBI recognized the surging pressure in food prices and oil prices and therefore revised up its inflation projection upwards to 5.4% for FY24 from 5.1% earlier, while retaining its growth estimate of 6.5%. We expect the central bank to remain on prolonged pause in FY24.
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