The Reserve Bank of India (RBI) is all set for its bi-monthly policy review with the Monetary Policy Committee (MPC) meeting starting today. As the central bank ramps up its efforts to curb inflation and push growth, analysts are expecting a moderate to low rate hike at the end of this RBI MPC meeting.
As per the RBI MPC meeting schedule, the discussions and review would begin today and continue for three days. The bi-monthly policy review is expected to come out on December 7, a time when analysts expect an announcement related to a hike in interest rates.
While the rate hikes are not expected to be aggressive, some analysts have also predicted figures. After some back-to-back 50 basis points hike in interest rates, the RBI is expected to consider a lower interest rate hike of 25-35 bps, as per the industry expectations.
Suvodeep Rakshit, Chief Economist, Kotak Instituitonal Equities said, "The RBI’s December policy meeting will likely see the MPC hiking repo rate by 35 bps; lower than the last three hikes of 50 bps. However, the decision is unlikely to be unanimous. The domestic inflation trajectory while remaining above the upper limit of the RBI’s inflation target band is gradually moderating. Domestic demand remains steady though risks of a global demand slowdown are increasing which is likely to impinge on India’s growth."
Relaying similar sentiments, Madan Sabnavis, Chief Economist, Bank of Baroda says, “We do believe that the MPC will continue with rate hikes this time though the magnitude will be lower - probably 25-35 bps. More specifically we do believe that the terminal repo rate for the financial year will be 6.5%, which means there will be one more rate hike in February. It is unlikely to change the stance and the withdrawal of liquidity will continue. While the RBI will take a hard look at both the GDP and inflation projections, there could be some downward revision for GDP growth.”
In addition to inflation and other domestic issues, the RBI is also expected to take some cues from the global markets, especially from the US Federal Reserve. Though the Fed didn’t deny another rate hike, it reportedly mentioned that the pace of interest rate hikes is expected to get slower from December. However, this would also depend on a host of factors.
Speaking on the possibility of RBI’s MPC meeting drawing cues from global trends, Aditya Shah, Founder, JST Investments told Outlook Business, “Since inflation continues to slowly ease off across the world, interest rate hikes have also continued to ease off. Now we are in the last 1% hike of the cycle. The US Fed eased off the interest rate hike from about 75 bps to 50 bps. Similarly, the RBI is also expected to ease it off from a 50 bps hike to 35 bps. However, the interest on home loans is expected to continue to move up as the repo rate is hiked. Therefore, it may become prudent to increase your EMIs.”
Virat Diwanji, Group President & Head, Consumer Bank, Kotak Mahindra Bank Ltd., also had a similar prediction ahead of the RBI MPC meeting. He said, “With the rupee holding itself steady and crude prices hovering in the comfortable zone, the MPC might go in for a mild to a moderate tweaking of the interest rates. A marginal upward revision of 35 basis points is expected this December, followed by another 25 bps hike. However, this will depend on inflation, demand and global factors particularly US Dollar rates and volatility."
Largely, analysts expect a moderate rate hike, one that is slower and lower as compared to the previous rate hikes. However, the actual decision will only be known once the RBI MPC meeting ends. While the Indian economy is expected to be relatively insulated from the global economic downturn, analysts still do expect some impact as inflationary pressures continue to mount.
