June Monetary Policy Is Super Live, Brace For 25-50 Basis Points Hike, Emkay Global

June policy is super live... brace for 25-50bps hike, Emkay Global has said in a report, post the MPC Minutes were released. "The triple whammy of commodity-price shocks, supply-chain shocks and resilient growth, has shifted the reaction function in favor of inflation containment. The RBI no longer thinks the output sacrifice required to contain somewhat supply-driven inflation can be so high, on net. The reaction function is now evolving with fluid macro realities. The inflation prints of next two quarters are also likely to exceed 6%, which could pressure the RBI into acting sooner rather than later. We are tracking next month's inflation at 6.8%, and this may push the MPC to hike by another 25bps-50bps in June.

FY23 could thus further see rates going up by 100-125bps, with the RBI now showing its intent to keep real rates neutral or above to quickly reach pre-Covid levels. However, the front-loaded rate-hiking cycle does not imply a lengthy tightening cycle, and once they reach the supposed neutral pre-Covid monetary conditions, the bar for further tightening incrementally may be higher amid increasing growth-inflation trade-offs," Emkay Global has said.

MPC Minutes: Front Loaded Interest Rate Hikes Ahead, Says Emkay Global

The minutes of the out-of-turn May MPC that saw a repo rate hike of 40bps reflected increased policy urgency and catch-up with heightened inflation uncertainties. "The persistent inflation narrative saw coherence among members, with most believing, irrespective of the source of inflation (supply or demand side), that the current high levels require a policy tilt and taming of inflation expectations," Emkay Global has said in a report.