RBI unlikely to go for any rate hike this time?
Inflation came down substantially over last 3 mths and is showing further downward momentum. External conditions also eased with slower rate hikes in the US
image for illustrative purpose
- SBI also expects RBI may go for a pause
- Financial stability should take precedence
- Inflation cooling off
- Growth is stable
- RBI has luxury of raising rates or deferring it
Mumbai: After having raised interest rates to the tune of 225 basis points in the current fiscal, the Reserve Bank of India (RBI) may now take a pause on rate hike, when it discloses the deliberations of the MPC meeting which concludes on February 8, feel experts.
Inflation has come down substantially over the last three months and is showing further downward momentum. External conditions have also eased with slower rate hikes in the US. RBI's foreign exchange reserves have also increased over the last few months. All these factors may prompt RBI to go for status quo with regard to key interest rates and maintain the repo rate at 6.25 per cent for extended period. It might also change the policy stance to neutral.
Talking to Bizz Buzz, Pankaj Pathak, Fund Manager (Fixed Income), Quantum AMC, says: "Bond market should react positively. We expect bond yields to go down gradually though elevated bond supply will limit the downside of yields."
The internal economic research wing of SBI is also of the view that RBI may go for a pause in rate hike.
Dr Soumya Kanti Ghosh, SBI group's chief economic advisor, says: "In the current rate cycle, rate actions, both hikes and cuts, have been largely synchronized. We find evidence that synchronized rate actions have resulted in increased market volatility and financial stability in both the period post global financial crisis and the current regime."
A non-synchronous monetary policy action in 2023 by central banks across the world could thus materially result in lower volatility and financial stability. RBI might take cues from it as financial stability takes precedence, he said.
Nilesh Shah, Managing Director, Kotak Mahindra Asset Management Company, says: "Central banks of the world are in admiration of the way RBI has navigated growth and inflation dynamic. The apex bank has the luxury of raising rates or deferring it as inflation is cooling off and growth is stable. The market will be looking forward to the guidance on borrowing programme of FY24." However, Emkay is of the view that RBI may go for a 25 bps hike in interest rate today. Madhavi Arora, economist with Emkay, says: "We expect the MPC to also ease its pace of rate hikes further and deliver 25 bps in February after 35 bps in December (total repo hike of 225 bps and effectively 335 bps so far)."
Bond market should react positively. We expect bond yields to go down gradually though elevated bond supply will limit the downside of yields
- Pankaj Pathak, Fund Manager (Fixed Income), Quantum AMC
