RBI rate hike likely at next meeting, say experts

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RBI rate hike likely at next meeting, say experts

Industry experts from SBI, UBS, Goldman Sachs, Barclays and Bank of Baroda think that the six-member Reserve Bank of India RBI's six-member rate-setting panel will deliver a 50 bps rate hike next week and take the terminal rate to 6.25 per cent by December. The next meeting of the RBI's MPC is scheduled for September 28 - 30, 2022 to frame the bi-monthly monetary policy.

State Bank of India SBI Goldman Sachs, Barclays, UBS and Bank of Baroda s economists are unanimously calling for a 50 bps hike at its next meeting, taking the overall repo rate increase by 290 bps to 5.90 per cent since May this year.

A half-percentage point hike in the repo rate looks imminent, according to Soumya Kanti Ghosh, group chief economist at SBI. He said that the peak repo rate in the cycle is expected to be 6.25 per cent. In December policy is expected to be finalized by a rate hike of 35 bps. After 40 months, Liquidity has become deficit, which may cause the banking regulators to support the market through a change in the Cash Reserve Ratio CRR and Open Market Operations OMOs Tanvee Gupta-Jain, chief economist at UBS Securities India, said that she expects the RBI-MPC to front-load the rate hike cycle and increase the repo rate by another 50 bps, against 35 bps previously, on September 30 s meet. The terminal repo rate would increase to 6.25 per cent by December, against the previous 6 per cent.

Jain stated that the large current account deficit, elevated Consumer Price Index CPI and a stretched fiscal position are mostly due to supply-side factors rather than easy credit conditions pushing domestic demand.

The chief economist at Barclays India, Rahul Bajoria, forecast a 50 bps increase in repo rate next week and a 35 bps hike in December. He said that there would be 50 bps of further rate hikes in 2023 and 75 bps earlier in the year, which would take the repo rate to 6.75 per cent by April 2023.

Bajoria expects the RBI-MPC to change its stance to neutral on falling commodity prices.

Madan Sabnavis, chief economist at the Bank of Baroda, stated that the recent developments in the forex market could lead to a higher quantum of 50 bps to stay on track with other markets to retain investor interest. He added that a hike of 25 -- 35 bps would signal that the RBI is confident that the worst of inflation is over.

Santanu, from Goldman Sachs, said there was a 50 bps hike and a 35 bps hike in December, with upside risk to the forecast if commodity prices in Q 4 are higher. Sengupta said that there would be 50 bps of rate hikes in 2023, 75 bps earlier in the year, which would take the repo rate to 6.75 per cent by April 2023.