Ind-Ra also expects the retail inflation to fall to 6.3% in 3QFY23 and 6.5% in 4QFY23 from 7.0% in 2QFY23.

The rating agency believes a real policy rate of 1.0%-1.5% would provide comfort to the regulator as the real policy rate is in the negative territory.

India Ratings and Research (Ind-Ra) expects the terminal policy rate will be 6.25% - 6.50% in the current rate hike cycle, subject to the retail inflation falling to 5.0-5.5% by 1QFY24. 

Although the Reserve Bank of India (RBI) has ruled out any such terminal policy rate, the rating agency believes a real policy rate of 1.0%-1.5% would provide comfort to the regulator as the real policy rate is in the negative territory.

The RBI in its Monetary Policy Statement of 30 September 2022 has projected the retail inflation to come in at 6.5% in 3QFY23, 5.8% in 4QFY23 and 5.0% in 1QFY24. 

Ind-Ra also expects the retail inflation to fall to 6.3% in 3QFY23 and 6.5% in 4QFY23 from 7.0% in 2QFY23.