RBI rates likely to feature this Friday, say analysts

With the US Federal ReserveFederal Reserve delivering a 75 basis points rate hike for the third time in a row this month, a 35-50 basis point increase in the repo rate is expected to occur this Friday, according to analysts who felt that the same is being priced in by the market.

There would be a commentary on how the RBI deals with rupee fluctuations would be closely followed, so would be the interest rate outlook, analysts said.

Deepak Jasani, Head of Retail Research at HDFC Securities, said the market is more or less a factor in a rate hike. He said investors would be interested in knowing how the central bank manages the ongoing volatility in the rupee and the tools it may use going forward. Investors would look for any indication that would give them an idea of whether it is the last rate hike or more hikes in the near future, Jasani said.

Inflationary fears are more important than recessionary concerns in the world. Even though the world's largest economy is facing a technical recession, a hike in the interest rate by the US Fed this month came as the world's largest economy is facing a technical recession. This has raised fears of a synchronised global monetary tightening.

In July, 7 per cent were above the RBI's comfort zone, after remaining stuck at about 7 per cent in May-June period.

It noted that the August minutes of the RBI MPC were read as relatively-balanced by domestic market participants, but the world order has changed significantly since the last MPC policy review in early August.

The market has already discounted a 50 bp hike in rates, and it will not have any negative impact. VK Vijayakumar, Chief Investment Strategist at Geojit Financial Services said that the trend in the US market and FPI flows will have more impact on the market.

After the RBI policy review, D-Street investors would be keenly following the rupee movement, which hit a record low of 81.94 on Wednesday. Foreign flows are hurt by a fall in the rupee. Foreign portfolio investors FPIs have poured 1,654 crore outflows this month against huge equity inflows of Rs 51,204 crore in August, as of September 28, showing the massive equity inflows of Rs 1,654 crore.

Sonal Badhan, Economist at Bank of Baroda said that the rupee is expected to trade in the range of 81 -- 82 per dollar, though RBI action on Friday and commentary will have a bearing on future movements. The economist said that the RBI may revise its inflation forecasts by 6.7 per cent for FY 23 if it expects the trends in monsoon and sowing to affect food inflation.

Edelweiss Securities said the RBI's commentary on liquidity will be closely watched as the LAF surplus has vanished.

The RBI is prioritizing macro-stability - inflation, rupee, etc. The economic recovery is nascent, and this is likely to weigh on growth, the brokerage said in a note.

The three-day MPC policy review will conclude on Friday.