With retail inflation showing signs of softening and the US Fed reducing the pace of its benchmark interest rate hike, the Reserve Bank is set to marginally hike the repo rate by 25 basis points in its upcoming bi-monthly monetary policy later this week. is likely to do. , In its December monetary policy review, the central bank had raised the key benchmark interest rate (repo) by 35 basis points (bps) after giving three back-to-back hikes of 50 bps each.
Since May last year, the Reserve Bank has increased the short-term lending rate by 225 basis points to control inflation, driven mostly by external factors, especially global supply chain disruption following the outbreak of the Russia-Ukraine war. The RBI’s rate-setting panel – the Monetary Policy Committee (MPC) – will begin its three-day deliberations on the next set of monetary policy on Monday. The verdict will be pronounced on February 8.
Kotak Institutional Equities said in a report that the global inflation environment is gradually softening, although inflation is still well above the target of each central bank. Inflation is expected to soften further in the next few months, ending the rate hike cycle by the first half of 2023 and allowing for a rate cut in late 2023/early 2024. “However, given the large global uncertainties, central banks’ levers to support growth through monetary easing remain limited, posing a risk of higher rates for an extended period.
“We expect the RBI MPC to hike the policy rate by 25 bps to 6.5 per cent, followed by a prolonged wait-and-watch as it assesses the impact of monetary tightening on growth and inflation,” it said. The RBI has been tasked with ensuring that retail inflation remains at 4 per cent with a margin of 2 per cent. However, it failed to keep the inflation rate below six per cent for three consecutive quarters from January 2022.
However, retail inflation based on the Consumer Price Index (CPI) showed signs of moderation in November and December as it fell below the RBI’s upper tolerance level of 6 per cent. Housing.com Group CEO Dhruv Agarwal on his expectations from the MPC Amidst growth projections for 2023-24 slower than earlier forecast, the RBI will probably stick to a modest increase in its benchmark lending rate in the upcoming policy announcement . before hitting the pause button on Hike later in 2023.
“The move is likely to have limited impact on real estate demand as home buying decisions are driven and determined by a number of factors other than just home loan rates. Borrowers are expected to pay as home loan EMIs for prevailing rates,” it said. The U.S. will feel the pinch of this increase in rates. And new loans will go up,” he said. Amita Vaidya, Director, Sarla Anil Modi School of Economics, NMIMS Mumbai also said that the Monetary Policy Committee may ease its monetary tightening stance.
Read this also | Committed to ensuring market integrity, SEBI said; Refers to ‘abnormal price fluctuations’ in Adani Group
“However, the downside to the global economic outlook continues. The domestic economy is showing buoyancy and resilience. Food inflation is under increasing pressure from higher cereal prices. Thus RBI may focus on withdrawal of accommodative and policy may raise the rate by up to 25 basis points,” he said.
On the other hand, Ranan Banerjee, partner and leader, economic advisory services, at PwC India, said that with the US Fed reducing the quantum of hike by 25 bps, the CPI within the RBI’s tolerance range, the yield differential between the US and India is approx. is increasing. At 3.75 percentage points, sluggish exports and the need to keep borrowing costs low for the government and the private sector, the MPC does not have many reasons for further rate hikes.
“The only argument for a rate hike would be too soon, a pause could de-anchoring inflation expectations. On this front too, given our inflation is mostly demand-based and not supply-based, the arguments are weak.” So don’t be surprised if the majority in the MPC actually goes for a pause or a 10-15 bps increase in the repo rate from an indicative perspective,” it said.
Speaking at the 22nd FIMMDA-PDAI Annual Conference recently, RBI Governor Shaktikanta Das said that with some easing of Covid-related restrictions in various countries and a reduction in inflation, though still rising, central banks have decided to lower rates And started acting as a pivot. rise or fall.
“At the same time, they have been emphatically reiterating their resolve to bring inflation closer to targets. Higher policy rates for a longer period seem a distinct possibility going forward. On the growth front, projections now hover around a A milder recession than a severe and more widespread one anticipated a few months ago,” he said.
Das said the Indian economy remains resilient in this hostile and uncertain international environment, drawing strength from its macroeconomic fundamentals. “Our inflation remains high, but there is a welcome moderation during November and December 2022,” he said. The governor said that core inflation, however, remains stable and high.
Read this also | Multibagger small-cap company shares X-split with 123% return in 1 year
