Describing the recent two consecutive spikes in retail inflation beyond the 6 per cent as a ‘transitory hump’, a Wall Street brokerage on Monday said it expects the RBI to overlook it and unanimously stick to the dovish stance at the forthcoming policy review, even though a further upward revision of its already-revised inflation target is more likely.

The Reserve Bank-led monetary policy panel is scheduled to announce the third monetary policy review on August 6, amidst the continuing spike in retail inflation that has breached the 6 per cent upper tolerance level for the past two consecutive months.

 “We expect the MPC to stick with a dovish pause in the August 6 policy, overlooking the ‘transitory hump’ in inflation. Thereafter, the normalisation path will depend on the evolution of growth, inflation and the pandemic. The governor is likely to reiterate a dovish message and argue against a hasty withdrawal of monetary policy support,” Bank of America Securities India house economists said in a report.

 But they were quick to warn an abnormally high crude prices may force the RBI to adapt to normalisation process sooner than later.

 The repo rate has been at record low of 4 per cent since June 2020, after lowering it by 115 bps during the first half of the pandemic-hit year, and the reverse repo, which has become the effective rate given the surplus liquidity, at 3.35 per cent, after it was slashed by 155 bps during the same period, resulting in an asymmetric +25/-65 bps policy corridor.

 The MPC is likely to revise up its FY22 average CPI inflation forecast slightly from the previous 5.1 per cent and flag potential upside risks. On the other hand, the MPC is also likely to retain the FY22 real GDP growth forecast at 9.5 per cent, with risks evenly balanced now.

 On policy normalisation, the report said if there is no hard-hitting third wave but yet a sizeable outbreak occurs, the RBI is likely to meet its growth and inflation forecasts first.