RBI Monetary Policy Committee may soften its stance with lower rate hike amid easing inflation – know what experts say

The monetary policy committee (MPC) of the Reserve Bank of India (RBI) is likely to soften its stance in terms of key rate hike decision, which is scheduled to be disclosed on December 7, 2022, several analysts estimate, stating that the central bank to change its stance to Neutral from Accommodative.

The bi-monthly policy meeting of the RBI headed by Governor Shaktikanta Das is underway between December 5-7, 2022, and the committee is to announce its decision on Wednesday. The MPC has been on a rate hike spree since May 2022 on the back of higher inflation led by rising commodity prices.

Deepak Agrawal, Chief Investment Officer, Debt Fund, Kotak Mahindra Asset Management Company expects a 35 basis points (bps) hike in the December meeting, along with a change in MPC stance from ‘withdrawal of accommodation’ to ‘neutral’ indicating further action to be data dependent.

Similarly, Anand Nevatia, Fund Manager - Trust Mutual Funds said, the markets expecting a slightly dovish tone from the MPC with a rate hike of 35 bps on broadly discounted yields.

The MPC however would be mindful of risks emanating from global volatility and recession fears across developed economies, Nevatia added in a comment.

Incremental momentum in inflation is showing signs of moderation owing to falling commodity prices amidst global growth slowdown, Radhavi Deshpande, Joint President & Chief Investment Officer, Kotak Mahindra Life Insurance said.

“Hence, MPC focus can shift to assessing the lagged impact of past policy actions and expect a 25 bps in the coming policy and a data-dependent stance going forward,” Deshpande said in its note.

Churchil Bhatt, Executive Vice President & Debt Fund Manager, Kotak Mahindra Life Insurance said, “We are witnessing early signs of peaking inflation because of sharp monetary tightening was seen in the recent past. Since monetary policy acts with a lag, the committee may want to take a bit of a breather in its fight against inflation to assess the impact of past policy actions.”              

The real GDP (Gross Domestic Product) came at 6.3 per cent in the July-September quarter of this fiscal and 9.7 per cent in April-September of FY23. With a full-year forecast for FY23 growth in the vicinity of 7 per cent, the second half GDP for FY23 may be in the 4.25-4.5 per cent range, Agrawal said.

After subdued government spending in the first half, the pick-up in the second half will provide support to growth, the analyst said, adding that the recent fall in crude prices and falling inflation expectations will continue to boost private consumption, thereby aiding growth.