Informist, Tuesday, Aug 2, 2022

By Team Informist

NEW DELHI/MUMBAI - There is little doubt that the Reserve Bank of India's Monetary Policy Committee will raise the repo rate again this Friday as inflation stays high and central banks across the globe raise their policy rates. But the quantum of hike remains a guessing game.

In a poll by Informist, all 30 respondents expected the rate-setting panel to hike the repo rate, but the divide on quantum was visible. A dozen respondents expect the repo rate to be hiked exactly by 50 bps, 11 by 35 bps, two by 25 bps, and one by 40 bps. The other four respondents gave a range for the hike--two of 35-50 bps, and one each of 25-35 bps and 40-50 bps.    

What comes as a surprise is that none of the respondents see the central bank raising rates by more than 50 bps even as fears of capital outflows remain with interest rate differential between India and the US narrowing after the Fed raised rates by 75 bps last week.

The total quantum of hike in policy rates by the Fed since RBI last met in early June is 150 bps. However, in public speeches, RBI management led by Governor Shaktikanta Das has pointed out that the Indian central bank has been frontloading its policy actions to ensure a ‘soft landing’ for the economy.

"We don’t advocate for RBI to be as hawkish as the Fed as India is at a different stage of growth recovery," Gaura Sen Gupta, India economist, IDFC First Bank, said.

"Inflation pressures in the US are led by demand and supply-side factors, with an extremely tight labour market. In India inflation pressures are still predominantly supply-side led and our labour market doesn’t exhibit signs of overheating."

Although, the repo rate has been hiked by 90 bps in this cycle, the RBI effectively pushed up policy rates by another 40 bps when it introduced the Standing Deposit Facility in April. The repo rate currently stands at 4.90% and a hike more than 25 bps will take the repo rate above the pre-pandemic level of 5.15%.

Estimating the exact quantum of repo rate increase has become tougher since Das in his speeches over the years, has batted for non-25 bps increases, as he believes it gives the RBI more flexibility to take small or large actions as the situation demands.

It will be interesting to see whether the Monetary Policy Committee opts for yet another unusual quantum for the repo rate hike at its three-day meeting that starts on Wednesday. 

"We hope that the central bank and the MPC members will ultimately agree on the merits of continuing with front-loaded rate hikes at this juncture and resist from delivering a lower rate hike than 50bps, particularly against the backdrop of outsized rate hikes delivered by most central banks across the world recently," said Kaushik Das, chief economist, Deutsche Bank India and South Asia.

Inflation has topped the upper band of the RBI's medium-term target range of 2-6% for six consecutive months. The fact that if it stays above the 6% level for another quarter, as it is expected, will be deemed a technical failure on the inflation targeting mandate will mean that the RBI can ill afford to take the foot off the pedal on interest rate increases.

The headline consumer price indexed inflation rate has averaged 7.3% in Apr-Jun, 20 basis points lower than the Reserve Bank of India's projection for the quarter. The annual inflation rate based on CPI was at 7.01% in June.

Respondents are of the view that the RBI will, and should, continue to frontload the rate hikes with a 35-50 bps hike this week to keep inflation in control and also maintain pace with central banks around the world.

Five respondents see the terminal rate at 5.75%, with four of them expecting the rate hikes to stop by March in this cycle.

Three poll participants expect the terminal rate at 6.00%, two at 5.90%, and three others at 5.65-6.00%.

Barclays Chief India Economist Rahul Bajoria points out that the downward trend of inflation will mean that the RBI will move closer to its desired level of real rates soon, and thus lead to a lower terminal rate for this rate hike cycle.

"We maintain our view that the MPC will follow up an August rate hike with two successive 25 bps hikes in the September and December meetings, taking the policy rate to 5.75%, which we expect to be the terminal rate in the current cycle," Bajoria said.

While most participants did not provide a specific view on the policy stance that is currently ‘withdrawal of accommodation’, two respondents expect the rate setting panel to shift to a ‘calibrated tightening’ stance.

The following are expectations of respondents on the likely rate action by the Monetary Policy Committee on Friday:

End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Written by Shubham Rana and T. Bijoy Idicheriah

Edited by Arshad Hussain

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2022. All rights reserved.

Informist, Tuesday, Aug 2, 2022

By Team Informist

NEW DELHI/MUMBAI - There is little doubt that the Reserve Bank of India's Monetary Policy Committee will raise the repo rate again this Friday as inflation stays high and central banks across the globe raise their policy rates. But the quantum of hike remains a guessing game.

In a poll by Informist, all 30 respondents expected the rate-setting panel to hike the repo rate, but the divide on quantum was visible. A dozen respondents expect the repo rate to be hiked exactly by 50 bps, 11 by 35 bps, two by 25 bps, and one by 40 bps. The other four respondents gave a range for the hike--two of 35-50 bps, and one each of 25-35 bps and 40-50 bps.    

What comes as a surprise is that none of the respondents see the central bank raising rates by more than 50 bps even as fears of capital outflows remain with interest rate differential between India and the US narrowing after the Fed raised rates by 75 bps last week.

The total quantum of hike in policy rates by the Fed since RBI last met in early June is 150 bps. However, in public speeches, RBI management led by Governor Shaktikanta Das has pointed out that the Indian central bank has been frontloading its policy actions to ensure a ‘soft landing’ for the economy.

"We don’t advocate for RBI to be as hawkish as the Fed as India is at a different stage of growth recovery," Gaura Sen Gupta, India economist, IDFC First Bank, said.

"Inflation pressures in the US are led by demand and supply-side factors, with an extremely tight labour market. In India inflation pressures are still predominantly supply-side led and our labour market doesn’t exhibit signs of overheating."

Although, the repo rate has been hiked by 90 bps in this cycle, the RBI effectively pushed up policy rates by another 40 bps when it introduced the Standing Deposit Facility in April. The repo rate currently stands at 4.90% and a hike more than 25 bps will take the repo rate above the pre-pandemic level of 5.15%.

Estimating the exact quantum of repo rate increase has become tougher since Das in his speeches over the years, has batted for non-25 bps increases, as he believes it gives the RBI more flexibility to take small or large actions as the situation demands.

It will be interesting to see whether the Monetary Policy Committee opts for yet another unusual quantum for the repo rate hike at its three-day meeting that starts on Wednesday. 

"We hope that the central bank and the MPC members will ultimately agree on the merits of continuing with front-loaded rate hikes at this juncture and resist from delivering a lower rate hike than 50bps, particularly against the backdrop of outsized rate hikes delivered by most central banks across the world recently," said Kaushik Das, chief economist, Deutsche Bank India and South Asia.

Inflation has topped the upper band of the RBI's medium-term target range of 2-6% for six consecutive months. The fact that if it stays above the 6% level for another quarter, as it is expected, will be deemed a technical failure on the inflation targeting mandate will mean that the RBI can ill afford to take the foot off the pedal on interest rate increases.

The headline consumer price indexed inflation rate has averaged 7.3% in Apr-Jun, 20 basis points lower than the Reserve Bank of India's projection for the quarter. The annual inflation rate based on CPI was at 7.01% in June.

Respondents are of the view that the RBI will, and should, continue to frontload the rate hikes with a 35-50 bps hike this week to keep inflation in control and also maintain pace with central banks around the world.

Five respondents see the terminal rate at 5.75%, with four of them expecting the rate hikes to stop by March in this cycle.

Three poll participants expect the terminal rate at 6.00%, two at 5.90%, and three others at 5.65-6.00%.

Barclays Chief India Economist Rahul Bajoria points out that the downward trend of inflation will mean that the RBI will move closer to its desired level of real rates soon, and thus lead to a lower terminal rate for this rate hike cycle.

"We maintain our view that the MPC will follow up an August rate hike with two successive 25 bps hikes in the September and December meetings, taking the policy rate to 5.75%, which we expect to be the terminal rate in the current cycle," Bajoria said.

While most participants did not provide a specific view on the policy stance that is currently ‘withdrawal of accommodation’, two respondents expect the rate setting panel to shift to a ‘calibrated tightening’ stance.

The following are expectations of respondents on the likely rate action by the Monetary Policy Committee on Friday:

End

IST, or Indian Standard Time, is five-and-a-half hours ahead of GMT

Written by Shubham Rana and T. Bijoy Idicheriah

Edited by Arshad Hussain

For users of real-time market data terminals, Informist news is available exclusively on the NSE Cogencis WorkStation.

Cogencis news is now Informist news. This follows the acquisition of Cogencis Information Services Ltd by NSE Data & Analytics Ltd, a 100% subsidiary of the National Stock Exchange of India Ltd. As a part of the transaction, the news department of Cogencis has been sold to Informist Media Pvt Ltd.

Informist Media Tel +91 (11) 4220-1000

Send comments to feedback@informistmedia.com

© Informist Media Pvt. Ltd. 2022. All rights reserved.