Industry experts from SBI, UBS, Goldman Sachs, Barclays and Bank of Baroda are unanimous in forecasting that the Reserve Bank of India (RBI)’s six-member rate-setting panel is likely to 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 during 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 to see the monetary policy committee deliver a 50 bps hike at its next meeting, taking the overall repo rate increase 290 bps to 5.90 per cent since May this year.
According to Soumya Kanti Ghosh, group chief economist at SBI, a half-percentage point hike in the repo rate looks imminent in an aggressive response to external shocks. He said, ”We expect the peak repo rate in the cycle at 6.25 per cent. A final rate hike of 35 bps is expected in December policy.”
Liquidity has become deficit after 40 months, which looks like another headwind for the RBI, Ghosh said, adding that this may force the banking regulator 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. This would take the terminal repo rate to 6.25 per cent by December, against the previous 6 per cent.
Jain, while explaining the positive side, stated that the large current account deficit, elevated Consumer Price Index (CPI) and a stretched fiscal position are mostly due to the supply-side factors rather than easy credit conditions pushing domestic demand.
Rahul Bajoria, the chief economist at Barclays India, also forecasted a raise in the repo rate to a 50 bps hike next week and a 35 bps hike in the December meeting. "We now expect 50 bps of further rate hikes in 2023 (75 bps previously) which would take the repo rate to 6.75 per cent by April 2023,” he said.
Bajoria also expects the RBI-MPC to change its stance to neutral on falling commodity prices.
Madan Sabnavis, the chief economist at Bank of Baroda, stated that the recent developments in the forex market could prompt a higher quantum of 50 bps to stay on track with other markets to retain investor interest. He further added that a hike of 25-35 bps would have signalled that the RBI is confident that the worst of inflation is over.
Santanu, from Goldman Sachs, said about a 50 bps hike and a 35 bps hike in December, with upside risk to the forecast if commodity prices in Q4 are higher. “We now expect 50 bps of further rate hikes in 2023 (75 bps previously) which would take the repo rate to 6.75 per cent by April 2023,” Sengupta said.
(With input from agencies)
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