Will Lower Than Forecast CPI & Tighter Fiscal Policy Influence RBI’s Monetary Policy Stance?


The Reserve Bank of India (RBI) embarks on its two-day monetary policy meeting amidst a shifted economic landscape compared to its December policy. With Consumer Price Index (CPI) figures below projections and tighter fiscal policies announced, speculation arises whether this will prompt a dovish shift in RBI’s stance. In this article, we delve into the nuances of the current economic scenario and its potential impact on RBI’s monetary policy decisions.

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A Changed Economic Ambience:

Recent developments indicate a departure from expectations. CPI figures for November and December have fallen below forecasts, coinciding with a lower-than-anticipated budget deficit announcement. Additionally, the RBI, after maintaining tight liquidity, injected substantial cash into banks, leading to a decline in interbank call rates. Amidst these changes, the question arises: will the RBI pivot towards a dovish stance?

Expert Insights: On Monetary Policy

Santanu Sengupta from Goldman Sachs and Abhishek Upadhyay from ICICI Securities PD share their perspectives on the matter in a discussion with CNBC TV18. Sengupta suggests that while there have been improvements in investment activity and PMI data, inflation remains a concern. He anticipates the RBI to maintain its policy rates, reaffirming its commitment to the 4% inflation target. On the liquidity front, he notes proactive measures by the RBI to manage deficits and signals towards maintaining call rates around 6.5-6.75%.

RBI's Monetary Policy Stance

On the other hand, Upadhyay opines that recent developments warrant a reevaluation of RBI’s stance. With significant progress in mitigating inflation risks domestically and globally, he anticipates a potential shift in language, though the timing remains uncertain. Both experts agree on the likelihood of a nuanced approach from the RBI, balancing the need for stability with potential easing measures.

Implications for Businesses:

The potential implications of RBI’s stance on businesses are significant. A dovish tilt in monetary policy could lead to lower borrowing costs for companies, potentially stimulating investment and economic growth. However, uncertainty persists, particularly regarding global factors such as Fed rate decisions and geopolitical tensions, which could influence RBI’s decisions in the coming months.


As the RBI deliberates on its monetary policy stance, the confluence of domestic and global economic factors underscores the complexity of its decision-making process. While recent developments suggest room for a dovish shift, uncertainties remain, necessitating a cautious approach. Businesses, investors, and policymakers alike await the outcome of the policy meeting, anticipating its implications for the economic trajectory in the months ahead.

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