The monetary policy of the Reserve Bank of India (RBI) will be announced on June 8, 2022. Here is what some of the leading economists and BFSI stakeholders expect from the regulator.
Shanti Ekambaram, Group President – Consumer Banking, Kotak Mahindra Bank: The MPC has signalled a gradual withdrawal of accommodation in light of higher inflation. The RBI’s stance will likely be ‘neutral’ while it will stay committed to bringing back inflation closer to the targeted levels through all possible instruments. I expect a rate hike between 35-50 basis points in the June policy. Based on inflation data and external factors, including oil and commodity prices, expect a total of 100 to 150 bps increase in repo rate from the current 4.40%. However, fiscal and monetary policies must move in tandem to bring inflation within targeted levels and provide support to economic growth.
Sonal Badhan, Economist, Bank of Baroda: Latest data shows that India’s real GDP rose by 8.7% in FY22, lower than NSO’s previous estimate of 8.9% and RBI’s 9.1% expectation. RBI in its off-cycle meeting raised the policy rate by 40bps. If we closely look at the policy document, there is clear signalling that the inflation trajectory is indeed a concern. We expect another 50-75bps policy rate hike during the year with another increase in the June policy. We expect RBI’s CPI projection to go for another round of upward revision. Our CPI forecast is at 5.5-6%, with a clear upward bias towards 6%.
Anil Gupta, Vice President & Co-Group Head, Financial Sector Ratings, ICRA Ratings: ICRA anticipates a policy rate hike of 110 basis points (bps) in the upcoming reviews, taking the terminal policy rate to 5.5% by September 2022, including a 40-bps hike in the upcoming policy statement on June 8, 2022. While the guidance on the pace at which the future rate decision will drive the trend in the short-term rates, the 91-day Treasury bill (T-Bill) could eventually peak at 6% and the borrowing costs for CPs could rise further to 6.5% in the near term.
Lakshmi Iyer, Chief Investment Officer (Debt) & Head Products, Kotak Mahindra AMC: The off-cycle rate hike has stoked expectations of front loading of rate hike decisions by RBI. With the US not yet relenting on moderating the pace and quantum of rate hikes, and inflation not showing immediate signs of abating, it seems yet another slam dunk decision to hike rates in the upcoming policy. Quantum of rate hike (40-50bps in our view) will be a key determinant in extrapolating the terminal repo rate for FY 2023. Though aggressive tightening is already discounted by the bond markets, the stance of the policy will continue to assume significance in the direction of bond yields.
