Economy: MPC minutes: Hint of contrasting views - Kotak

MPC minutes: Hint of contrasting views. The April 5-6 policy meeting minutes reiterated MPC's concerns on upside risk to inflation. While the sticky behavior of core inflation and possible mean reversion of food inflation remain key concerns, most committee members remain watchful of second round impact of 7CPC HRA increases.

There were two strong and contrasting views on inflation. On one hand, Dr Patra sounded extremely hawkish on inflation risks and even called for a preemptive 25 bps rate hike to avoid the need for back-loaded policy action later. On the other hand, Dr Dholakia sounded dovish as he deviated significantly from the RBI's inflation forecast and noted comfortable inflation dynamics (including core) through FY2018.

While we expect ~50 bps of downside to RBI's March 2018 estimate of 5%, headline inflation is likely to remain higher than the medium-term target of 4%. Further, sticky core inflation leaves limited scope for further easing with growth expected to improve marginally. We maintain our call for a status quo on rates in FY2018.

Source : Equity Bulls

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