Monetary policy will be relaxed in 2023

In 2023, it will be seen how long the Reserve Bank keeps the policy rate high. The policy rate is either at the highest level. Based on current expectations, policy rates can be expected to remain stable going forward.

Growth concerns suggest the central bank will hold policy rates steady at its February meeting and then resume rate cuts from July-August 2023. The impact of wholesale inflation for manufactured goods has been subdued in recent months, while cost pressures have been high. This shows the weak pricing position of the manufacturing companies. On the other hand, headline retail inflation is expected to fall below a 6-month low in Q423 and hover around 5 percent in Q1424.

Clearly, the downside risk to growth is high and the risk to inflation is lower still. 'Given the state of domestic growth and inflation and the growing perception of the global economy, monetary policy easing is unlikely.'

The rate of inflation may remain within the prescribed limits. In 2022, many central banks, including the Reserve Bank, hiked interest rates due to an increase in inflation rates. However, going forward, the inflation rate in India is expected to remain within the tolerance band of the Reserve Bank. Forecasts on external sector and rupee balance will also provide some relief to the Reserve Bank.