RBI MPC Meeting: Economists expect a rate hike of 25-30bps — Check reasons | Zee Business Poll
RBI has hiked interest rate by 50 basis points (bps) thrice since June, over and above an off-cycle 40 bps increase in the repo in May.
RBI Monetary Policy Meeting: The Reserve Bank of India (RBI) has begun its Monetary Policy Meeting (MPC) on Tuesday. Economists expect that there will be an interest rate hike of 25-30 bps this time, as per a poll by Zee Business, conducted among 15 economists.
RBI will announce the outcome on December 7.
The central bank has hiked interest rate by 50 basis points (bps) thrice since June, over and above an off-cycle 40 bps increase in the repo in May.
Following a series of 50 bps hike by the central bank, a 25 bps hike is expected in the upcoming MPC meeting, say economists. Pandemic-time easing in monetary policy has now been fully reversed with steep rate hikes by the central bank.
While the majority of the economists agreed that the rate hike will be between 25-30bps, some analysts and economists argued it may be 30-35 bps.
“We expect the RBI to hike rates by 35 bps at its upcoming policy meeting and by 25bps at the next meeting, taking the rates to 6.5 per cent by the end of this fiscal year. In terms of forecast, the RBI is likely to keep its inflation and growth forecast unchanged,” added Swati Arora, economist, HDFC Bank.
Shishir Baijal, Chairman and Managing Director, of Knight Frank India also seconded her thought. He stressed on the fact that in the Q2 FY23 GDP print, except for the service sector, degrowth was seen in most of the core sectors such as industry, manufacturing, etc. "Hence, with inflation potentially showing signs of ebbing and growth concerns coming to the fore, we expect the RBI to hike its repo rate by a comparatively subdued 30-35bps in the upcoming MPC meeting," said Baijal.
Here are the five major reasons economists have pointed out that will drive RBI’s decisions in this policy meeting:
1. Ease in inflation
While the headline inflation is still elevated, the incremental momentum is showing signs of easing. Thus, it is likely the RBI will take a moderate stance in terms of rate hike. If the CPI inflation continues its downward move and there are no upside surprises from commodity prices, MPC may also point at the possibility of a pause next year.
2. No adverse impact on growth
Despite continued rate hikes in the past few months, the growth has not been impacted and that could influence the decision of the RBI, believe economists. “This will give MPC the confidence to go on with its rate hike to take the terminal repo rate close to 6.50 per cent in this rate hiking cycle. However, we might see the quantum of a rate hike in December policy lower than 50 basis points as domestic inflation is likely to have picked out and US Fed has given a clear indication of slowing down the current pace of interest rate hikes,” said Dr Sudarshan Bhattacharjee, principal economist, Yubi, formerly known as CredAvenue, an Indian fintech company.
3. GDP growth
GDP at Constant (2011-12) Prices in April-September 2022-23 (H1 2022-23) is estimated at Rs. 75.02 lakh crore as against Rs.68.36 lakh crores during the corresponding period of previous year, showing a growth of 9.7 percent in H1 2022-23 as against 13.7 percent during the same period last year. “MPC will take decision by looking at GDP growth estimates, food production, global slowdown, and effect of the repo rate hike on borrowing costs and economic recovery,” said Dr Sriharsha Reddy, Director, IMT Hyderabad. GDP growth in the second quarter has slowed down and it does look like that growth will be lower in Q3 and Q4. Economists said RBI’s call on GDP growth will be eagerly watched.
4. Moderate rate hikes by other central banks
Economists asserted that this meeting will be key from a forward guidance perspective as central banks globally have begun to slow the pace of rate hikes or have indicated that going forward the pace of rate hikes is likely to slow. “We expect the RBI to retain policy stance as ‘withdrawal of accommodation’, so as to maintain policy flexibility given the uncertain global environment,” said Gaura Sengupta, an economist from IDFC First Bank.
5. Low rate difference b/w India and the US
The latest NFP data out of the US indicates that wage pressure has risen further with hourly earnings rising by 5.1 per cent YoY in November v/s 4.9 per cent in October. Hence economists expect the Fed to continue hiking policy rates as labour market remains out of balance. “The interest rate differential between India and the US (repo rate v/s Feds Fund rate) is the lowest since November 2006. Hence, we expect rate hikes by RBI to continue beyond December. That said, RBI is not expected to not match the Fed, in terms of policy tightening as inflation pressures in India are predominantly driven by supply-side factors,” said Sengupta.
Economists from the Bank of Baroda believe that the MPC will continue with rate tightening, though, the intensity will reduce to a 25-30 bps increase this time. This will be followed with another 25/35 to make the terminal rate 6.5 per cent in March 2023
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03:23 PM IST