RBI may moderate rate hike pace at policy meet

MUMBAI: The Reserve Bank of India (RBI) is expected to moderate the pace of interest rate hikes at its monetary policy committee (MPC) meeting, which will be held from December 5 to 7. As against three successive hikes of 50 basis points (100bps = 1 percentage point), the RBI is expected to raise rates by 25-35bps.

Industry bodies have called for a moderation to end the rate hike cycle, while economists are forecasting a smaller hike of 2535bps. There is a case for a smaller rate hike as inflation numbers are expected to be better than expected since the RBI has factored in crude oil prices at $100 a barrel. Also, many agencies have reduced their growth forecasts below RBI’s estimates of 7%.

Barclays economist Rahul Bajoria said, “India’s growth trajectory is poin-ting to a soft landing, as the impact of slowing global activity, elevated & sticky commodity prices, and tighter domestic monetary conditions take a toll. As a result, we recently lowered our FY24 growth forecast to 6% from 6. 5% earlier. For FY25, we forecast steady GDP growth of 6. 5%. ”

Many now expect that there will be disagreement among the MPC members of the committee given the views disclosed in the previous policy meeting. “With recent divergence in viewsamong MPC members, we don’t think further policy rate tightening will be a consensus decision. Two external MPC members have advocated a pause or tapering of hikes at the December meeting as they recommended seeing the impact of past tightening on the economy before further monetary policy action,” said Goldman Sachs in a report.

Deutsche Bank economist Kaushik Das said, “We are forecasting another 35bps repo rate hike in the December 7 policy, taking the policy repo rate to 6. 25% by the end of the calendar year. Beyond December 2022, however, we are not sure whether the MPC will want to move further in the February 2023 meeting with a last 25bps hike to take the repo rate up to 6. 5%. ” He added that the bar for a rate hike in February will be high, particularly given that two MPC members are in favour of a pause even in Q4.