The three-day meeting of the RBI’s Monetary Policy Committee is going on and the announcement of the outcome will be made on the last day of the meeting, Wednesday (June 8). Though experts are giving various estimates as to how much the RBI may raise the key repo rate, a Moneycontrol poll of 15 economists showed that the rate-setting panel is likely to raise the repo rate by 40 basis points for the second time in five weeks.
In a recent interview, RBI Governor Shaktikanta Das said, “The expectation of a rate hike is a no-brainer. There will be some increase in repo rates but by how much, I will not be able to tell now.”
According to the Moneycontrol report, while the median of economists’ predictions points to a 40-basis-point rate hike on June 8 to 4.80 per cent, they were far from unanimous in their expectation of the quantum of a rate hike the MPC is likely to announce, with estimates ranging from 25 basis points to at least 50 basis points. One basis point is a hundredth of a percentage point.
It added that frontloading of rate hikes seems to be the theme with Morgan Stanley predicting successive rate hikes of 50 basis points on June 8 and in early August.
What Economists Say
Rumki Majumdar, economist at Deloitte India, said the RBI will likely go for a policy rate hike given the higher inflationary pressures, depreciating currency, rising imports, and tightening monetary policy conditions across major nations, except China. The RBI will have to bite the bullet and emphasise more on stability than growth objectives during this recovery phase.
Indranil Pan, chief economist at YES bank, said, “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.”
The retail inflation in April stood at an eight-year high of 7.79 per cent, forcing the RBI to hike interest rates in an off-cycle monetary policy in May. In the April MPC meet, the RBI had revised upwards its retail inflation forecast to 5.7 per cent for the current financial year 2022-23, as compared with the 4.5 per cent projected earlier.
Lakshmi Iyer, chief investment officer (debt) and head (products) at Kotak Mahindra Asset Management Company, said the off-cycle rate hike has stoked expectations of front loading of rate hike decisions by RBI. With the 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 the rate hike (40-50 bps 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,” Iyer said.
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