It is widely anticipated that the RBI MPC will maintain the repo rate at the current level of 6.5 percent. This would mark the sixth consecutive time when the rate remains unchanged.
The RBI’s mention of the “risk of overtightening” amid a fluid global backdrop strengthens our view that domestic policy reversal will be a function of global dynamics.
If real interest rates remain elevated and they will if the RBI holds on to its unerring focus of bringing headline inflation to 4 percent, it is likely to dampen demand and even investments from firms.