A policy hold and a hawkish commentary

We expect that the MPC and RBI will hold key policy rates on Friday. The communication, though, is likely to be hawkish, preparing markets for an inevitable start of formal normalisation, which is now consistent with India’s growth-inflation dynamics.

The RBI is likely to maintain its 9.5% FY22 growth forecast, but there are downside risks, given rising supply-oriented disruptions, and receding but existent Covid flare-ups. There might be a minor downward revision of the earlier 5.7% CPI inflation forecast, with upside risks.

Fiscal interventions are needed to boost demand and induce durable growth. The role of monetary policy will now largely be