RBI MPC Meeting June 2022 Expectations LIVE UPDATES: RBI MPC's monetary policy review meet is taking place on June 6-8. Here is what experts have to say about monetary policy review and what are they expecting in terms of RBI MPC Meeting June 2022 Outcome:-

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Shanti Ekambaram, Group President – Consumer Banking, Kotak Mahindra Bank Ltd.
 

"The MPC has signalled a gradual withdrawal of accommodation in light of higher inflation. It is likely that the RBI's stance will be “Neutral” while it will stay committed to bringing back inflation closer to the targeted levels through all possible instruments. I expect a rate hike between 35-50 basis points in the June policy. Based on inflation data and external factors, including oil and commodity prices, expect a total of 100 to 150 bps increase in repo rate from the current 4.40%. However, it is important that fiscal and monetary policies move in tandem to bring inflation within targeted levels and provide support to economic growth." 

HDFC Bank Treasury Research Desk

"At the upcoming policy meeting, the RBI is expected to raise the policy rate by 25 bps while continuing to keep its stance and the CRR rate unchanged. We tilt on the side of a 25 bps rate hike instead of 50 bps as we do not see a compelling case for a larger rate hike at this stage. For one, the central bank could take comfort from the recent measures announced by the government to combat inflation. Moreover, the expectation of a normal monsoon and some recent moderation in global food prices also provide some comfort for the food inflation outlook. Finally, after delivering a 40 bps rate hike in May, the central bank could err on the side of caution and avoid any major disruptions in the financial market (especially in regards to the bond market where keeping borrowing costs at bay remains a key objective) and to growth, which remains uneven and has shown signs of a fragile recovery at best.

Policy Stance: We do not expect any change in the current monetary policy stance despite the increase in rates. From what we understand, the “accommodative while focusing on withdrawal of accommodation” stance is perhaps in line with the central bank’s move towards pre-pandemic levels of interest rates (repo rate at 5.15%) – so a reset in rates instead of a sharper tightening.  If our reading is correct, the stance could remain unchanged until the pre-pandemic level of interest rate (or thereabouts) is achieved.

Change in forecasts: We do expect the RBI to change its inflation forecast by 70-80bps from 5.7% earlier citing the change in global and domestic price pressures. Although the growth forecast is expected to be kept unchanged at 7.2% for FY23." 

 

Dhananjay Sinha, MD & Head –Strategist , JM Financial Institutional Securities Limited

"- Two risks on external balance are pronounced, a) widening trade deficit and b) continues portfolio retrenchment due to tightening global financial conditions. The sequence of correction in global commodity prices and recent restrictions on exports (steel, iron ore, agri produce) would imply a deceleration in exports while oil imports continue to remain elevated in the foreseeable future. This will continue to see widening trade deficit. 

- The combination of external vulnerabilities and higher fiscal deficits will complicate matters for RBI as it juggles between multiple objectives of inflation control, orderly currency and Gsec yield scenario. Our assessment indicates that RBI’s currency management in the face of rising US rates and strong dollar has translated into rising exchange rate rigidity and it reflects in decline in RBI’s forex reserve by USD 42bn from the peak to USD 600bn. Thus, in the context of continued rate and quantitative tightening by the US Federal Reserve will result in both liquidity moderation in India along with further rate hikes.

- Separately, inflation management is tricky as the real repo rate is deeply negative at -3.4% (4.4%-headline CPI at 7.8%) and -2.6% assuming core inflation of 7%. Thus, to arrive at a neutral real rate of 1% RBI will have to substantially increase the repo rate and tighten liquidity. Assuming that core inflation softens to 6% in the next 12 months the short term rates will have to be at 7% from the current level of ~4% (overnight call money rate). This would ideally call form about 200-250bp addition repo rate hike. Over the next 12 months RBI can be expected to hike rates by 150bp at least and a 40-50bp hike on Jun 8th.

-What can change the medium term scenario is the possibility of a global recession or a hard landing translating into an early financial market capitulation and collapse in global commodity prices."

Ashish Khandelia, Founder, Certus Capital

"We expect the repo increase to be between 40-50bps in upcoming MPC meeting with future increases leading to ~5.75% (where we were exactly 3 years ago) or upwards by the end of FY23. Last 40 bps increase in May caused homes loans to move in to 7% +/- range from ~6.5% earlier. And by the end of this financial year, home loan rates will likely touch ~8%. This is unlikely to derail the housing momentum but its will certainly soften it. Coupled with increasing prices, the growth may slow down a bit in FY23, after a record FY22."

 

Umesh Revankar, Vice Chairman & MD, Shriram Transport Finance

“We expect the RBI to hike interest rates by anywhere between 25-40 bps in the June policy meeting. No doubt inflation has risen in India, and it is largely attributable to the global geo-political environment. The GDP growth of 8.7% in FY22 on the low base, still shows that domestic demand remains feeble and with higher inflation dampening the purchasing power,  the regulator may not want to raise rates too aggressively. RBI is taking measures to bring down excess liquidity in the system to control the inflation, meanwhile the Government is also managing inflation by reducing tax on petroleum products and restricting the exports of essential commodities.”

 

Upasna Bhardwaj, Senior Economist at Kotak Mahindra Bank:

“Despite government’s supply side interventions to curb price pressures, the foreseeable inflation trajectory remains skewed closer to 7%. We expect the MPC to revise upward the inflation trajectory by 70-80bps accounting for the upside price pressures. The GDP estimates may remain unchanged for now. From the policy withdrawal perspective, RBI in the last two months has moved quite aggressively and swiftly. The weighted average overnight rates have risen by 80-90bps since the April MPC policy. The recent countercyclical government measures has clearly provided room for the MPC to avoid disruptive tightening. We expect a repo rate hike of 35-40bps and status quo on CRR in the upcoming June policy.”

Bofa Securities

The Reserve Bank is expected to go for another rate hike of 0.40 per cent at the scheduled review of the monetary policy next week, a foreign brokerage said. The central bank's rate setting panel will follow it up with a 0.35 per cent hike in rates at the next review in August, or make it into a 0.50 per cent hike next week and a 0.25 per cent increase in August, to make the total quantum of rate hikes at 0.75 per cent, the report by Bofa Securities said.

The report from the brokerage said it sees the headline inflation for May to come at 7.1 per cent due to a sharp increase in tomato prices.

While mentioning about measures like the excise duty cuts on fuel products, duty free imports of crude soyabean and sunflower oil and cut in ATF prices, the report said such moves will help avoid a runaway increase in inflation.

However, it said the consumer price inflation will average 6.8 per cent -- much above the RBI's tolerance limit of 6 per cent -- in FY23.
The central bank will itself do an upward revision of its estimate to 6.5 per cent in FY23 from the present 5.7 per cent, it added.

"... We expect the RBI MPC to hike policy repo rate by 0.40 per cent in June and 0.35 per cent in August. We must highlight that for the sake standardised steps, the chances of delivering a 0.50+0.25 per cent hike combination is quite high too," the report said.

The key thing is that RBI MPC exits ultra-accommodation by August and takes policy repo rate to the pre-pandemic level of 5.15 per cent, it said, adding that if inflation continues to be high after that, the RBI will take the repo rate to 5.65 per cent by end of FY23.

The brokerage said it also sees another 0.50 per cent hike in the Cash Reserve Ratio (CRR) or the ratio of demand deposits parked by lenders with the RBI without any return, as the central bank moves to normalise liquidity conditions by withdrawing excess stock.

Lakshmi Iyer, Chief Investment Officer (Debt) & Head Products, Kotak Mahindra Asset Management Company

“The off-cycle rate hike has stoked expectations of front loading of rate hike decisions by RBI. With US not yet relenting on moderating pace and quantum of rate hikes, and inflation not showing immediate signs of abating, it seems yet another slam dunk decision to hike rates in the upcoming policy. Quantum of rate hike (40-50bps in our view) will be a key determinant in extrapolating the terminal repo rate for FY 2023. Though aggressive tightening is already discounted by the bond markets, the stance of the policy will continue to assume significance in the direction of bond yields .”

Anand Nevatia, Fund Manager, Trust Mutual Fund

"Crude has once again inched up to ~ $120 with news of China opening up. This combined with geo-political tensions continue to keep inflation expectations high. With RBI now prioritising inflation targeting over growth, we expect 35-50bps rate hike along with hike in CRR to bring down liquidity. We should be prepared for a series of rate hikes as the central bank aims to reach a neutral to positive real rates."

Mohit Batra, Founder & CEO of MarketsMojo

RBI will try to tackle two issues in its upcoming monetary policy- tackle inflation and ensure that the rupee does not depreciate too much against the dollar. The last time when RBI revised its inflation target, crude was at $100 per barrel, and now it's trading at $120 per barrel, suggesting a risk of inflation flaring up is high. Keeping these facts like rupee depreciation and high inflation rate, I expect RBI to hike the interest rate by 50bps.

Indranil Pan - Chief Economist, YES BANK 

"Not an easy job for the central banker. Recently released GDP data showed a sliding y-o-y growth for private consumption expenditure, an indication that economic activity remains slow. On the other hand, the inflation surprise has brought to the fore the need for the RBI to tighten monetary policy. The government has also joined the RBI in an attempt to contain inflationary pressures in the economy. We see the RBI extending its 40bps repo hike of May with a 35bps increase in June, followed by 25bps each in August and September. By this time, we expect the global growth to have softened enough to pull down commodity prices and thus provide some comfort to the domestic inflation cycle too. We thus factor in the RBI to press the pause button again after a 15bps insurance hike in the repo rate in December and analyze the implications of its rate hike cycle of 140 bps on growth before taking any further decision."