MUMBAI: A day before the RBI’s monetary policy committee (MPC )decision, economists, bank officials and brokerages have variously pencilled in a 25-35 to 40-50 basis point hike in the repo rate at the conclusion of the two-day meet on June 8.
Bank of Baroda expects a 25-35 bps raise, while Kotak Mahindra Bank a 35-50 bps increase and Emkay Global a 40-50 bps hike. “In the upcoming credit policy of RBI, we expect MPC to raise repo rate by another 25-35bps,” said Dipanwita Mazumdar, an economist at BoB.
BoB expects the repo rate to increase to 5.15% gradually. The inflation forecast is expected to be revised upward from its current projection of 5.7% for FY23. Its forecast is about 6% for FY23. Even RBI’s growth forecast of 7.2% is expected to be downgraded slightly.
Shanti Ekambaram, Group President – Consumer Banking, Kotak Mahindra Bank, said he expects a rate hike between 35 and 50 basis points at the June meeting. “The MPC has signalled a gradual withdrawal of accommodation in light of higher inflation. It is likely that the RBI’s stance will be “Neutral” while it will stay committed to bringing back inflation closer to the targeted levels through all possible instruments,” Ekamabram said.
The RBI raised repo rate by 40 bps at an off-cycle meeting in early May ahead of the CPI inflation print release for April. Retail prices month surged to an eight-year high of 7.79%, driven by food and fuel prices. RBI Governor Shaktikanta Das subsequently said in a media interview that further hikes in the repo rate were a “no-brainer” given rising inflationary expectations.
That resulted in a slew of guesstimates by financial market stakeholders on the impending rate hike in June. Brokerage Emkay Global, which has forecast a 40-50 bps hike in June, expects maximum tightening of the repo rate by 6% by FY23.“Pre-war expectations of limited financial volatility owing to the Fed had allowed Asian CBs, including the RBI, to be more domestic driven.
However, amid persistently high inflation and fears of being “behind the curve,” the India swap markets are now aggressively pricing a terminal rate closer to 7% plus,”Emkay said in a research note. Options traders have so far expected a tepid response with not a very large movement in the 12 share Bank Nifty amid the June 8 policy.