The Reserve Bank of India’s key policy repo rate was hiked by 50 basis points on Friday, the third hike in as many months to pacify persistently high inflation.
Upasana Bhardwaj, Chief Economist, Kotak Mahindra Bank, Mumbai
“MPC’s decisions have been in line with our expectations. Given the rising external sector imbalances and global uncertainties, the need for front-loaded action was imperative. We will continue to see a 5.75% repo rate till December 2022.”
Garima Kapoor, Economist, Institutional Equities, Elara Capital, Mumbai
“To rein in inflationary pressures and reduce inflation expectations, the MPC hiked the repo rate by 50 bps and retained its stance on the return of housing.”
Nikhil Gupta, Chief Economist, MoFSL Group
RBI increased the repo rate by 50bp to 5.4%, which is higher than the consensus (5.25%) and our expectation (5.15%). Furthermore, there was no change in stance or any relief in the Governor’s statement, indicating a possible break in the next policy. The rate decision was also taken unanimously today.
Aurodip Nandy, Economist of India and Vice President of Nomura
RBI’s 50bp hike was largely in line with market expectations, which were split between it and the 35bp hike. Very importantly, with the RBI retaining its policy stance of “return to housing”, the underlying message is that rates are yet to reach neutral territory, and that more rate hikes are needed – one such viewpoint with which we agree. RBI continues to indicate that all options are on the table, which is a prudent strategy given the high level of uncertainties on both growth and inflation.”
Acute Rating and Research Comments on RBI MPC August 5, 2022
The RBI continued to make a relatively loud noise when it announced a hike of 50 bps, the third hike in the current cycle, taking the overall tally to 140 bps. This has taken the repo rate down to 5.40%, which is 25 bps higher than the pre-pandemic repo level. While the rates were increased in the current context, it has been slightly higher than our expectations, though in line with the market expectation of front loading.
Notably, the central bank has not revised its current growth or inflation forecasts despite signs of a global slowdown, a slowdown in developed economies and the already observed moderation in commodity prices. Presumably, it would like to go through more data points over the next two months before reviewing these forecasts. At this point, the central bank believes that India’s growth in the current year will be largely resilient with mitigating the risk of monsoon failure and a healthy pickup in rural demand.
While we await the inflation print for Q2FY23, we believe that rate hikes going forward will be moderate and there could be a break even if the CPI data throws the figure closer to 6.0% in the next 2-3 months. However, for now, further hike in deposit and lending rates by banks can be expected, given the better credit demand in the economy.