“The Monetary Policy Committee (MPC) voted 5-1 to raise the repo rate by 25bps to 6.5% while maintaining a neutral stance, focusing on its inflation mandate. The MPC noted that the growth continued to be robust with high frequency indicators like tractor and 2 wheeler sales and passenger vehicle demand showing good growth, while there was also increase in cement and steel consumption. Inflation showed an uptick on back of increase in core
Overall the policy is on expected lines with the MPC continuing to closely watch inflation. With 2 back to back rate hikes delivered, it is likely that the MPC may be in pause mode in October policy awaiting more information evolving global conditions especially on commodity prices and trade spats, pass through of MSP hikes, and impact of monsoon on food inflation. Further the MPC may wait to see the impact of 2 rate hikes, as there is lagged impact of monetary policy moves, on macro-economic parameters. Markets are likely to remain range bound with 10Y likely to remain in 7.75%-8% range.”