ICCK

RBI's monetary policy committee is expected to maintain a status quo on rates for the eighth consecutive time. The panel is scheduled to meet between June 5 and June 7.
A possible victory for the ruling NDA as indicated in exit polls is expected to result in lower bond yields and a stronger rupee. 

According to Madhvi Arora, lead economist at Emkay Global, "The final outcome, if in line with exit polls, would likely calm investor nerves as political and policy continuity will be good for risk assets in the immediate run and macro stability in the medium term. Forex and rates markets will cheer the outcome, with RBI likely to juggle with the problem of plenty."

She added that policy focus will continue to keep the rupee aligned with rest of the emerging market Asia peers while long positions on bonds would be buoyed. "We continue to see bull steepening of the G-Sec curve in the coming months," she added.

Besides waiting for inflation to come within the target range, the MPC is also expected to play wait-and-watch until the Union Budget for FY25 is finalised (in July). A big unknown before the MPC is whether govt will reduce the fiscal deficit and trim its borrowing program due to the record dividend announced by RBI or it will spend the money.

Shreya Sodhani, regional economist at Barclays, said, "The print suggests growth is moving faster than expected by RBI, which means the central bank should see little urgency to cut rates while the MPC awaits for comfort on headline inflation. In our view, the MPC will likely vote 5-1 to keep the policy mix unchanged at its meeting next week. We also do not expect the bank to reduce rates before Q4 2024, given its own inflation trajectory and persistent upside surprises in growth."

The strong momentum in growth is a major development after the April policy that would prompt RBI to retain the status quo. The GDP numbers for Q4 FY24 came at 7.7%, implying an 8.2% growth for FY24.

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