New Delhi: A continued dovish stance by the Reserve Bank of India (RBI) risks the central bank falling behind the curve.
Axis Mutual Fund said the call to maintain the status quo by the RBI continues to surprise market participants. In an environment where global central bankers are rushing to raise interest rates across much of the developed world and a few emerging markets, the RBI’s action today stands out.
“Factoring global risks, we believe a continued dovish stance risks RBI falling behind the curve”, it added.
Some experts said the inflation projections appear optimistic. Venkatraman Venkateswaran, Group President & CFO of Federal Bank said the RBI surprised the market by continuing its “accommodative stance” and not increasing the reverse repo rate, which was widely expected.
“They have adopted a cautious stance and to support recovery of the economy. The inflation projections appear optimistic given the rising oil prices and supply side constraints”, he added.
Niraj Kumar, Chief Investment Officer, Future Generali India Life Insurance said while the lower Inflation forecasts coupled with the accommodative status quo have imparted short-term respite to the reeling bond markets post the Union Budget, we reckon the upside risks to inflation may have been downplayed by MPC.
Arvind Chari, CIO, Quantum Advisors said, “We found the MPC statements and the comments from the RBI governor to be needlessly dovish. The bond markets have already priced in a move away from accommodative policy in the months to come”.
Chari said the RBI should be preparing the markets on the change in policy. The backdrop has changed. Global commodity prices pressures remain, the developed world central bankers are normalising monetary policy and we are no longer in crisis and hence do not need crisis time rates and monetary support, he added.
Suyash Choudhary, Head – Fixed Income, IDFC AMC said the large difference between RBI and private sector forecasts for CPI evolution in FY23 lies in the second half financial year’s trajectory, where the central bank’s forecast is much lower.
He added that the RBI’s defence that it is not behind the curve comes from their own rigorous analysis and forecast on the likely inflation trajectory ahead. This assessment is markedly different from most of the private sector forecasts. It is then a matter really about who turns out to be right on the assessment eventually.
(IANS)
