Will RBI slow down the pace of further repo rate hike?

reserve Bank of India It hiked the repo rate by 40 basis points in May, followed by 50 basis points in July and August respectively. CPI inflation, which stood at 6.71% in July, has remained above the RBI’s target range for the seventh consecutive month.

In his note, Deutsche Bank Based on the expectation in the recently released minutes of the Monetary Policy Committee (MPC) meeting, the RBI is expected to respond with a slower pace of rate hikes from the September policy.

Furthermore, the note from the Germany-based bank stated that “While the RBI has delivered significant front-loaded rate hikes so far, we think the central bank may now resort to hiking rates at a clip of 0.25%, especially if ( US) Fed lowers the pace of rate hikes since September to 0.50%,” reported PTI.

In the minutes of the meeting, RBI Governor Shaktikanta Das said, “Our actions today are to first bring CPI inflation within the target band and then take it closer to the medium-term target of 4% while supporting growth. Our policy measures are expected to strengthen the credibility of monetary policy and stabilize inflation expectations.”

“Our actions will continue to be calibrated, measured and agile based on the dynamics facing inflation and economic activity,” Das said.

However, in its latest research report, Kotak Securities reported that the minutes of the August MPC meeting highlighted the need for continued rate hikes to ensure the credibility of monetary policy. Members noted that inflation may be at its peak, with significant uncertainties and upside risks warranting further rate hikes to stabilize inflation expectations.

Further, Kotak’s note said, “Members were wary of near-term upside risks to inflation in (1) INR depreciation, (2) increase in GST rates, and (3) uneven distribution of the southwest monsoon.” From.”

“The MPC Minutes restate our view that further rate hikes by the MPC will reduce the need for aggressive rate hikes in the future by (1) global deflationary pressures, and (2) the potential backward effects of monetary tightening on inflation. However, given the near-term uncertainties, we see a need for additional rate hikes to manage inflation expectations,” Kotak’s note said.

That said, Kotak has retained its outlook for the repo rate at 5.75-6% till the end of CY2022.

The six-member MPC is focusing on the return of housing to ensure that inflation remains within the target while supporting growth.

Kotak expects the MPC to remove the phrase “return of housing” from the proposal and shift towards a neutral stance (likely in the December policy).

Meanwhile, Kajal Gandhi and Vishal Narnolia, Research Analysts at ICICI Direct, said in their research note, “We believe that inflation, at the beginning of the next financial year, may be below the RBI’s estimate of 5.0%, as crude Oil prices have also now started to moderate to higher levels. Even assuming medium term inflation at 5.0% and real rate at 1.0%, the terminal repo rate is likely to be around 6.0%, thereby The future rate may increase by 60 bps in the rest of the financial year.”

Further, the duo said in their note, “Therefore, out of the total 200 bps rate hike in the current rate hike cycle, 140 bps is already behind us and the rest is well discounted by the bond market. Accordingly, the curve Returns across the U.S. are likely to be range-bound in the near future with volatility arising from changing market sentiment and evolving data points.”

Analysts explained that the risk of higher rate hikes could stem from global factors rather than domestic ones, such as continued rate hikes by the US Fed, currency depreciation pressures due to the yield gap, and any further supply-side due to ongoing geopolitics. obstacle. stress.

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