According to a Reuters poll of analysts, the Reserve Bank of India (RBI) will focus on raising interest rates in the coming months as part of a relatively brief tightening cycle, with the repo rate expected to reach its terminal level in early 2023. Is. In a surprise rate hike on May 4, several members of the Monetary Policy Committee (MPC) advocated even more in upcoming sessions this year to keep sticky price pressures under control, which hit an eight-year high in May. Went. According to a Reuters poll, the central bank is expected to increase its benchmark policy rate by at least 100 basis points during the next four MPC meetings.
reserve Bank of India Its policy meeting on June 8 was expected to raise its unplanned 40 basis point repo rate hike to 4.40 per cent in May with another move that Governor Shaktikanta Das described as a “no-brainer”. The extent of the difference was unclear as the forecasts were divided in six ways, ranging between 25 and 75 basis points. This is slightly different from a similar survey conducted a month ago, which found a seven-way split.
According to 41 out of 47 respondents, the repo rate is likely to reach or exceed its pre-pandemic level of 5.15 per cent in the next quarter. It would end the year at 5.50 percent, according to the median, 110 basis points higher than today, and 19 out of 47 people thought it would go even higher.
Miguel Chanco, Chief Emerging Asia Economist at Pantheon, said, “Most of the growth will come this year and we expect that cycle to end in April next year … macroeconomics.
In fact, the path to tightening predicted for next year was more subdued, with only 40 basis points penciled in before a standstill in the first half, the survey’s moderators showed.
“The RBI was far behind the curve in terms of its outlook on inflation and what to do on interest rates. I still feel that they have put on colored glasses in terms of future outlook for prices,” Chunko said.
While inflation is expected to remain high due to higher global energy and food costs, economic growth prospects are beginning to dwindle. In the last quarter, GDP growth declined for the third consecutive year, the slowest in a year.
This could cause the RBI to consider stopping the tightening cycle less than a year after it began, unexpectedly boosting them at an unannounced meeting despite the fact that it had earlier prioritized growth over inflation. The rates were kept constant till the
When asked what would be the terminal repo rate, 14 out of 26 economists said 6.00% or more, while the rest wrote in the lower rate. Forecasts ranged between 5.15-6.50%.
Nearly two-thirds of respondents, 17, said the terminal rate would reach the end of the second quarter of 2023, roughly in line with mid-quarter forecasts. Six said the second half of 2023, while only three said the cycle would last until 2024.
But economists said a lot would depend on price pressures in the coming months.
Suvodeep Rakshit, senior economist at Kotak Institutional Equities, said if inflation remains well in the 6%-7% range in the current and next fiscal, the terminal rate should be higher than what they currently expect.
“We have to move it (terminal rate) higher where you are looking at your one year forward inflation. It’s not a number cast in stone, it will evolve with the inflation trajectory.”
(with Reuters inputs)