Policy Tightening In Light Of U.S FED Rate Hike?

What course of action will the RBI MPC take in the first policy meeting of this year and immediately after a capex Budget? While there is a higher likelihood of a modest 25 bps (or even lower) hike in the repo rate, the probability of a pause has also increased due to the last two monthly inflation prints and the relatively conservative borrowing projections for FY24. The headline CPI inflation dropped to 5.88% in November and further to 5.72% in December below the upper limit of the MPC tolerance band after staying above that level for ten consecutive months in the last calendar year. Further, the global inflation levels have also peaked with increased signs of slowdown and moderation in commodity prices, leading to major central banks curtailing the quantum of rate hikes to 25 bps from the earlier 50-75 bps. On the other hand, the rationale for going for another round of hikes is to anchor inflationary expectations, given that core inflation still continues to reign above 6 percent, and also stem the capital outflows which saw a spurt this January. While these data points may make it difficult for RBI to arrive at a decision, the prospects of a revision in monetary stance to neutral is strong.”