35-bps repo rate hike more likely

Mumbai: If analysts are to be believed, the Reserve Bank of India (RBI) may raise the key policy rate by 35 basis points on conclusion of its forthcoming monetary policy committee's meet on December 6, 2022. Dr Soumya Kanti Ghosh, SBI group's chief economic advisor, says: "We expect the RBI to hike rates in smaller magnitude in December policy attuned to emerging market central banks and the overall rate setting tone. A 35-bps repo rate hike looks imminent. We believe at 6.25 per cent, it could be the terminal rate for now."

The good thing is that with capital inflows picking up rapid pace in November, liquidity could get an unlikely buffer of rupee injection in lieu of $ purchases/building up reserves by RBI, says an internal economic research finding of SBI.

The domestic demand is recovering well as mirrored by the performance of host of high-frequency indicators. However, the prevailing global polycrisis is likely to impinge on our growth prospects too. Given the headwinds to domestic growth mainly emanating from the global uncertainties, RBI should consider moderating the pace of its monetary tightening from the earlier 50 basis points. This was stated by CII to the RBI regarding expectations on the forthcoming monetary policy.

Talking to Bizz Buzz, Shiva Kumar, former MD of State Bank of Bikaner & Jaipur, which was merged with State Bank of India, says, "while there is always a conflict between growth and inflation, consumption is rising in India and to sustain that, the inflation cannot be moved out of radar. By ignoring inflation, India may lose the cost advantage too on global platform."

RBI has already hiked interest rate by 190 basis points so far in this fiscal. However, given the sticky core inflation at around the 6 per cent mark, RBI could consider hiking the key interest rates by an additional 25 to 35 basis points to tame inflation, feels CII.

According to experts, good thing is that consumption is on the rise in India despite rise in inflation. Deepak Agarwal, CIO (Debt), Kotak Mahindra AMC, said, "Federal Reserve is likely to raise rates by 50 bps in December policy, hiking overnight rates by cumulative 425 bps during CY2022. Average CPI in India for FY24 is expected in the band of 5.00-5.25 per cent. Assuming 100 bps real rates, terminal repo rate in India could be 6.25 per cent."

We expect 35 bps hike in the December policy, along with change in monetary policy stance from 'withdrawal of accommodation' to 'neutral' indicating further action to be data dependent. Post this hike, the overnight rates in India would have increased by 300 bps during CY2022, he added.

Radhavi Deshpande, Joint President & Chief Investment Officer, Kotak Mahindra Life Insurance Company, said, "Having orchestrated a little more than two and a half per cent move in the overnight operative rate through policy rate hikes and liquidity unwind measures, monetary policy committee (MPC) can now afford to embark on baby steps from here on. Incremental momentum in inflation is showing signs of moderation owing to falling commodity prices amidst global growth slowdown. Hence, MPC focus can shift to assessing the lagged impact of past policy actions. We expect a 25 bps in the coming policy and a data dependent stance going forward."