In line with market consensus but contrary to our expectations of rate hike, RBI has kept policy rate unchanged. However RBI has revised its inflation upwards to 5.1% from 4.6% in FY27 while growth was revised upwards downwards to 6.6% from 6.9%. The key announcements were the host of measures to raise capital flows which includes removal of capital gains tax on bond securities for FPIs, expanding the base of FAR securities, swap concessions for FCNR(B) bonds among, concessional swap for ECBs and re-setting the export inflows time to 9m from 15m.
While the measures are a positive to attract flows, unless followed by rate hike, the effectiveness will be limited. Notably governor mentioned global central banks on hiking trajectory, serious upside risks to inflation from El-Nino, 2nd order impact, RBI will have to hike sooner than later. Overall, there is a lot of concerns, some action but the final rate hikes action is still awaited. We continue to pencil in 100 bp of hike and faster hike may be needed from August policy onwards.