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Further rate hikes in the offing: BFSI experts

The RBI increased the repo rate by 50 basis points, the second increase in five weeks. Here are the reactions of some of the leading economists and BFSI stakeholders to the MPC’s announcement on Wednesday. 

Nilesh Shah, Group President & MD, Kotak Mahindra AMC:
The RBI has navigated a delicate situation of rising inflation, slowing growth and reducing liquidity among global uncertainties caused by the Ukraine situation. The 50bps repo rate hike and withdrawal of accommodation are continuity of policy and as per market expectations. The RBI will require all its skills and a little bit of luck to control inflationary expectations and support growth in the days to come. 

Madhavi Arora, Lead Economist, Emkay Global Financial Services: The 50bps rate hike in policy repo rate is in line with our expectations of RBI remaining front-loaded on rate hikes. The reaction function is now evolving with fluid macro realities. FY23 could further see rates going up by 75 bps+. Our estimate shows a max tightening of policy rate by 6% by FY23, of which liquidity tightening to 2% of NDTL is tantamount to another estimated 25bps of the effective rate hike. 

Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank: The 50bps repo rate hike comes on the back of the persistence of elevated inflation and the continued upside risks. The RBI has to frontload actions. We continue to see another 60-85bps hike in the rest of FY23 to manage inflationary expectations. 

Rajeev Radhakrishnan, CIO-Fixed Income, SBI Mutual Fund: While the June ’22 RBI policy did not deliver any exciting update, it laid out hawkishness concerning inflation. Most eye-catching was the upward revision to inflation estimates, thereby acknowledging inflation pressures in the economy. FY23 inflation has been revised from 5.7% in April policy to 6.7% in today’s policy, with an additional qualification that average inflation may stay above 6% until December’2022. Today’s policy may provide a temporary breather to the bond market. Another 50bps hike in the next policy cannot be ruled out. We expect the policy rate adjustment process to be completed over the fiscal year. 

Rajni Thakur, Chief Economist, RBL Bank: RBI choosing to stay predictable this time will help soothe market sentiments. With multiple risks on price levels driven largely by external factors, the rate hikes will help anchor inflation expectations and impact the actual inflation outcome to a much lesser extent. This also, makes it difficult to gauge a terminal rate level for the cycle. We now expect a further rate hike of 50 bps in August, taking repo rates higher than pre-covid levels, followed by a pause to re-access the macro-dynamics and hikes in smaller quantum thereafter pushing year-end Repo-rates close to 6% levels. 


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