On August 5, 2022, the Reserve Bank of India will announce its monetary policy. Here is what some of the leading economists and BFSI stakeholders expect from the regulator.
Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank: We expect RBI to hike repo rate by 50bps in the upcoming policy. While some of the early signs of inflation moderation is visible, we believe that the external sector risks remain abound and to offset, at the margin, the increasing pressure on INR, RBI should frontload the rate hikes even as the overall terminal rate may not eventually be very high. We continue to expect 85bps hike in repo rate to 5.75% by end 2022. The recent gains in the rupee have been led by the decline in crude oil prices, FPI inflows and robust economic data, even as geopolitical risks are weighing on market sentiments. However, we expect any further sharp gains will be limited with RBI stepping on the dollar buying side and also as global risk appetite remains fragile.
Madan Sabnavis, Chief Economist, Bank of Baroda: Global currencies edged up against a weaker dollar. INR too ended the fortnight higher by 0.9% after depreciating to a fresh record low. A weaker dollar and revival in FPIs supported gains in USD/INR. Apart from the RBI policy meet, US CPI and jobs report will guide the trajectory of the rupee in the coming two weeks. We expect, INR to trade in the range of 79.15-79.75/$ in the next fortnight. Active intervention by RBI in the foreign exchange market has also ensured an orderly movement in the exchange rate. RBI’s foreign exchange reserves have fallen to a near 20-month low of $ 571.6bn as of 22 Jul 2022. On the flip side, India’s external position still remains tenuous.
Lakshmi Iyer, Chief Investment Officer (Debt) & Head Products, Kotak Mahindra Asset Management Company: “From to hike or not earlier this year, the key question for policy makers is how much to hike! US Fed seems to be running a sprint as far as rate hikes are concerned. Most other economies may not have the luxury of a marathon race hence. We expect RBI MPC to hike benchmark repo rate by 50bps as CPI continues to rule above RBIs threshold band. Commentary maybe neutral / dovish as CPI trend seems to be following RBIs forecast for FY 2023. Key to watch also would be the guidance if any in the future course of rate moves.
Indranil Pan, Radhika Piplani and Deepthi Mathew, Business Economics Banking, Yes Bank: Even as we have seen the worst of inflation in India, RBI is likely to continue to front-load its rate hikes to prevent a widening of the interest differential. We expect the RBI to hike policy rate by 50bps in August while rupee against dollar is anticipated to depreciate to 81-81.50 level by March 2023. As anticipated, FOMC recently hiked policy rate by 75 bps for a second consecutive time to 2.25-2.50%. Fed Chair Jerome Powell signaled for a data dependent Fed going forward. He guided to the fact that the current dot plot projections of a 3.25-3.50% FFR by December 2022 remains appropriate, thereby indicating an increase of 100bps from the current levels.
Churchil Bhatt, Executive Vice President Debt Investments, Kotak Mahindra Life Insurance Company: The upcoming August RBI policy will likely mark the end of an era characterized by outsized, at-any-cost rate tightening with a 35bps hike in policy rates. MPC may hint at a bit more moderate, data dependent policy adjustments thereafter, while persisting with ongoing withdrawal of system liquidity. From a medium-term perspective, trajectory of repo rate remains a function of global inflationary dynamics. In our view, while inflation may have peaked for now, it is far from dead. Unless supply is augmented in energy and industrial commodities, any growth impulse will lead to an accompanying rise in inflation, especially since the Ukraine situation is far from over. Therefore, any hint of a pause in rate hiking cycle may be treated as just that, with all possibilities open depending upon evolving growth inflation dynamics.
