New Delhi, June 5 (IANS) The reforms, rewards and resilience seen in the RBI MPC decisions can result in potential capital flows of $40 billion, which can pull back the rupee to 92-93 level against US dollar, an SBI Research report said on Friday, adding that it expects rate pause in RBI’s August policy.

“We believe RBI will continue to look through inflation prints before taking a considerate call of a potential rate hike. We continue to believe that growth considerations could trump a more aggressive rate hike cycle as market expectations tend us to believe. We expect a pause in August policy,” said the report.

Coming against the backdrop of a foggy landscape and yet to fully unfold second/third order impacts, the MPC assiduously set in motion a chain reaction heavy on addressing the continued volatility in exchange rate.

Separately, the MPC unanimously decided to keep repo rate unchanged at 5.25% and continuing with the neutral stance, even as growth projections have been adjusted by 30 bps to 6.6 per cent. The RBI has also revised CPI inflation projection by 50 bps to 5.1 per cent now (70 bps increase in Q2-Q4 estimates as compared to April policy).

“Basis our deep dive, the language of the monetary policy has shifted towards inflation vigilance and external sector defence even as stance of the policy is neutral. This is prudent as it signals calm and confidence on part of the RBI and inhibits any self-fulfilling pessimistic beliefs that can potentially lead to a speculative attack on the rupee,” said the SBI report.

It is worth noting that the policy statement has again emphasised in no uncertain terms that sometimes the rupee movement is not in sync with fundamentals.

“This puts to rest the recent unnecessary catcalls that the rupee should be allowed to move even towards 100! Such needless assertions create unnecessary heightened spells of speculations and allow incremental market positioning in taking fundamentally undesired bets against the rupee,” it observed.

–IANS

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