RBI may halt rate hike cycle after December policy: SBI

The bank believes the Monetary Policy Committee (MPC) of the RBI will increase the repo rate by 35 basis points on 7 December 2022 taking the repo rate to 6.25%.

Published: 05th December 2022 03:47 PM  |   Last Updated: 05th December 2022 03:47 PM   |  A+A-

SBI

State Bank of India. (File Photo | EPS)

By Express News Service

NEW DELHI: SBI Economic Research team believes that the Reserve Bank of India (RBI) will halt hike in repo rate after the December monetary policy.

“We believe at 6.25%, it could be the terminal rate for now,” says the bank in its latest SBI Ecowrap report.

The bank believes the Monetary Policy Committee (MPC) of the RBI will increase the repo rate by 35 basis points on 7 December 2022 taking the repo rate to 6.25%.

SBI’s latest view on the terminal rate stems from improving multiple domestic and global factors. The bank feels that inflation will be on a downward trajectory after December 2022. It pegs the inflation at around 5.2% by March 2023.

“The fear of impact of unseasonal rains on CPI inflation (particularly on food CPI) is likely to be unfounded. While India had received a staggering 54% above normal rains in October 2022, during Oct-Nov 2022, India’s excess rainfall was only 23% above normal,” says the bank in its latest report.

The bank also feels that the Rupee is no longer a weak currency after having fallen only 7.2% since the Russia-Ukraine war.

“The ‘less fall’ of the rupee post the Ukraine war that upped the ante on energy and commodity fronts and clogged the supply lines have been a testimony to the renewed prowess of the Indian economy and our policymakers who have taken pains to chalk out strategies and plans to keep the country largely immune from the external material shock,” says the report.

The bank also pointed out the improving current account deficit situation.

“We expect that if trends of strong remittances and software exports have continued (RBI data suggests software exports in Q2 was strong) in Q2, and India’s CAD comes in below the threshold level of 3.5% of GDP in Q2, the CAD for FY23 could still be closer to 3% benchmark or lower and not in excess of 3.5% of GDP,” it said.

It also highlighted the fact that moderating US inflation numbers would nudge the US Federal Bank to slow down its rate-hike spree.

“There was a good reason to believe that US inflation has shown signs of peaking and it is coming under control,” says SBI.



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