With RBI maintaining liquidity stance as "withdrawal of accommodation", guiding 4% inflation target and with monsoon getting delayed, a rate cut looks unlikely anytime soon.
The same may result in some pressure on long bond yields with 10-year trading with an upward bias in the near term. The Indian 10Year closed at 7.03 last.
To understand the economic variables at play thriough RBI lense on inflation, investment outllok by the Govt, private capex and commodity prices, lets deep dive into RBI MPC published comments.
"Going forward, the headline inflation trajectory is likely to be shaped by food price dynamics.
Wheat prices could see some correction on robust mandi arrivals and procurement. Milk prices, on the other hand, are likely to remain under pressure due to supply shortfalls and high fodder costs.
The forecast of a normal south-west monsoon by the India Meteorological Department (IMD) augurs well for kharif crops;however, the spatial and temporal distribution of the monsoon would need to be closely monitored to assess the prospects for agricultural production.
Crude oil prices have eased but the outlook remains uncertain.
According to the early results from the Reserve Bank’s surveys, manufacturing, services and infrastructure firms polled expect input costs and output prices to harden. A clearer picture will emerge when the final survey results are available.
The higher rabi crop production in 2022-23, the expected normal monsoon, and the sustained buoyancy in services should support private consumption and overall economic activity in the current year.
The government’s thrust on capital expenditure, moderation in commodity prices and robust credit growth are expected to nurture investment activity.
Weak external demand, geoeconomic fragmentation, and protracted geopolitical tensions, however, pose risks to the outlook."
Source- RBI MPC Meet June 8th
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