Given the January CPI inflation data and the release of the minutes of the monetary policy committee meeting on Wednesday, Kotak Institutional Equities expects the Reserve Bank of India to raise the repo rate by another 25 basis points in the April policy.

“Prior to the January 2023 inflation print, we were fully convinced about a prolonged pause by the RBI MPC with the repo rate at 6.5 per cent. However, the surge in the January inflation print to 6.52 per cent (stemming largely from the surprise jump in cereals inflation) has raised the risk of higher terminal repo rate,” the firm said in a note.

The expectation is owing to persistently elevated core inflation, volatile food prices, increasing likelihood of a higher terminal rate in the US, and uncertainty in commodity prices amid ongoing geopolitical conflicts and scale of revival in China.

Q4FY23 average CPI inflation is estimated to be 6 per cent compared to RBI’s estimate of 5.6 per cent, leaving the inflation average above 6 per cent for the fifth consecutive quarter, the note said.

The February MPC minutes highlighted internal members’ elevated concerns on core inflation while a few members were concerned about overtightening. Most members, however, expressed comfort on the growth front.