High inflation amid muted GDP forecast could be a party pooper for markets

Given the RBI's projection on inflation, we may not see any further cut rate at least till mid-March 2021. It may also get postponed to next fiscal year

The Reserve Bank of India’s (RBI’s) fifth bi-monthly monetary policy announcement was majorly on expected lines as the markets were already factoring-in a status quo. That said, the policy statement looks a bit conservative with lower-than-expected upward revision in the gross domestic product (GDP) forecast and higher-than-expected inflation projection especially for H2FY22.

Furthermore, the RBI’s forecast of 5.2 per cent to 4.6 per cent inflation shows that the RBI expects reasonably high inflation well into the next fiscal year, which in my view, is rather cautious. For all we know, the inflation might begin subsiding post January 2021 once supply-side