RBI MPC meeting from Wednesday: How much rate hike is on the cards in August policy? Analysts speak

The Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) is likely to raise the key interest rates in the range of 35 to 50 basis points (bps) with less hawkish commentary during the August bi-monthly policy, scheduled between August 3 and 5, 2022, most of the analysts estimated. 

Analysts see a rate hike in the upcoming policy meet only because of higher inflation numbers. June marked the sixth straight month when inflation came at 7.01 per cent higher than the upper tolerance level of RBI.

RBI Governor Shaktikanta Das’ commentary is expected less hawkish mainly on the back of multiple triggers such as a good monsoon and softening of commodity prices, including crude among others.   

The six-member committee headed by the Governor has so far raised the repo rates by 90 bps in two intervals of 40 and 50 bps (1 per cent = 100 basis points). 

The meeting, which was scheduled to take place between August 2 and 4 earlier, had been postponed by a day due to administrative exigencies, RBI Chief General Manager Yogesh Dayal had said in a statement earlier last week. 

We have collated views from different experts as to what to expect from RBI’s August monetary policy: 

Expert: Rajiv Shastri, Director & CEO at NJ AMC 

We believe that the central bank has stayed ahead of the curve so far and with inflationary impulses moderating, we may see a smaller than anticipated hike and don't see the repo rate touching 6% in this cycle. In fact, with international commodity prices holding steady, YoY inflation from these is set to moderate. We may see a much lower peak to this cycle with domestic food inflation moderating.  

Expert: Anand Nevatia, Fund Manager, TRUST Mutual Funds 

Commodity prices have come off the peaks and crude has been trading near $100. With supply-side issues waning, the upside risks to CPI have eased off a bit. The RBI has stated that it is looking to move towards neutral to positive real rates and given CPI estimations, a rate hike of 35-50 bps in the forthcoming policy is likely, albeit with a less hawkish commentary. 

Expert: Vinit Bolinjkar, Head of Research, Ventura Securities 

We expect a 35-50 bps hike while the inflation forecast is expected to be lowered to 6.7% for FY23 as governor Shaktikanta Das has already indicated that inflation appears to have peaked. 

Expert: Ravi Modani, Founder & CEO, 121 Finance 

Believe MPC will not increase the interest rates, and this will be a balancing act to maintain the local demand, after calibrating it with the loss of potential export demand from the US reaching a recession. With good monsoons in place, they would like to maintain the domestic consumer demand. Overall, don’t see any hike and should act as a catalyst to maintain the economic growth.  

Expert: Mohit Ralhan, Global CEO and Managing Partner, TIW Capital Group.  

The inflation in agri-commodities around the globe is showing no signs of abetment, while the Russia-Ukraine war still continues. The continuation of supply chain issues amidst the zero covid policy of China and labor shortages in major economies have made it difficult to curb inflation. 

Therefore, a significant rate hike is likely, which may or may not happen in one shot and RBI may like to spread it over this year. A 0.35 to 0.5 per cent hike in the next meeting looks likely followed by another similar hike later this year if inflation continues to rage above 7 per cent. 

Expert: Sharad Chandra Shukla, Director of Mehta Equities Ltd.  

We expect at least another 50 bps hike in the repo rate hike, if not 75 bps in the August policy and by another 100 bps in the next six months in case, the current economic situation does not improve. 

Defending the rupee is only reducing the war chest of the central bank. The USD-Re rate is almost at Re.80. and expect INR to touch INR 85 in the next 12 months. Till the time FII flows turn positive, the depreciation of currency will continue.  

The current account deficit is also getting revised estimates to 3%-3.5% is the expected range and if global inflation does not ease the MPC will have to take the real tough stance of hiking rates by 100bps in the next 6 months.  

Expert: Siddarth Bhamre, Research Head, Religare Broking Limited

To gauge what the forthcoming policy outcome is, it's important to understand that inflation has been driven by supply constraints and the main culprit is crude oil price. Higher oil prices impact adversely on food and other commodity prices which in turn has a cascading effect on inflation.

Firstly, crude oil prices are on a downward trajectory and so is inflation. Secondly, US Fed has given a guidance of 3.25% - 3.50% for the interest rates which is well below markets anticipation. These two factors coupled with a substantial amount of tightening in the liquidity situation in the banking space may ensure RBI may not move the needle much and may opt for a 25-35 bps hike in interest rates.

Expert: Sumit Chanda, Founder, JARVIS Invest

While there have been some indications of the inflation moderating, with the Brent still above the $100 mark and a falling Rupee, we can expect the RBI to hike the Repo Rate by about 50 bps. It should be noted that the tone of MPC has mellowed down over the past couple of weeks where they don't want to compromise on growth to fight inflation. They would rather have the fiscal policies address the pressure on the prices than act to reduce liquidity in the system to suppress demand.