RBI may hike reverse repo rate by 15-20 bps, CPI likely to jump past 6%: Analyst

The Reserve Bank of India (RBI) has started the three-day Monetary Policy Committee meeting starting today.  RBI Governor Shaktikanta Das-led Monetary Policy Committee will conclude on December 8.  

The meeting is expected to discuss on expectations, corporate performance, credit conditions, outlook for industrial, services and infrastructure sectors.

Earlier, in its last monetary policy statement in October, the RBI had kept the benchmark policy rate "unchanged".  

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It is expected that RBI may keep the rates unchanged even this month. "...We believe the talks of a reverse repo rate hike in the MPC meeting may be premature as RBI has been largely able to narrow the corridor without the noise of rate hikes and ensuing market cacophony," said an SBI research report.

Hawkish tilt in the policy can be seen: Pankaj Pathak, Fund Manager-Fixed Income, Quantum Mutual Fund

However, Pankaj Pathak, Fund Manager-Fixed Income, Quantum Mutual Fund, says that we can see a hawkish tilt in this policy. 

"The RBI may look past the Omicron related uncertainty and continue with its policy normalisation.  There is a high possibility of a reverse repo rate hike by 15-20 basis points in this policy. It should be followed by another reverse repo rate hike in February next year and repo rate hikes in the latter part of 2022," says Pankaj Pathak.  

Based on the recent price actions and the underlying trend across various goods and services, CPI is expected to jump past the RBI’s 6% upper threshold this month and sustain above the 6% mark in most part of 2022, says the analyst.  

He further said that given the growth is recovering at a steady pace, the MPC can shift its focus to inflation.  

The direction of the monetary policy is more or less discounted as per the market expectation and the current steep yield curve. "Incremental change in the market expectations will be driven by the timing of stance change, the pace of rate hikes and the length of the rate hiking cycle or the terminal repo rate," added Pathak.  

The Reserve Bank of India will hike its reverse repo rate early next year and increase its repo rate the following quarter, said a Reuters poll of economists, who were split on whether the latest COVID-19 variant risked delaying those moves.

A Kotak Economic Research report said with uncertainty around the new Covid variant, the RBI would possibly wait for some clarity before moving decisively on rates.

"We maintain our call for a reverse repo rate hike in February with the December meeting remaining a close call. We expect the RBI to continue on its path of normalisation with the reverse repo rate hike in February policy and repo rate hike in mid-2022-23," it said.