RBI Preview: Forecasts from five major banks, reducing size of rate hike

India’s Monetary Policy Committee (MPC) is scheduled to announce its Interest Rate Decision on Wednesday, December 7 at 04:30 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of five major banks for the upcoming central bank's meeting. 

The Reserve Bank of India (RBI) is expected to hike the repo rate by 35 basis points to 6.25%. At the last policy meeting on September 30, the bank hiked the repo rate by 50 bps to 5.90%.

ANZ

“We expect a 35 bps hike in the policy repo rate to 6.25%, reflecting the need to tame high inflation amid persistent domestic demand strength, as also shown in the Q3 GDP print. However, going forward, the pace of rate hikes will be tempered as external headwinds have eased considerably after the recent sell-off in the Dollar, oil prices, and the US Fed’s expected pivot to smaller rate hikes. The RBI’s FX reserves, too, have also risen on the back of revaluation gains. The wording of the monetary policy committee’s stance will have to be scrutinised as both nominal and real policy rates arenow entering growth restrictive territory.”

Standard Chartered

“We expect it to hike the repo rate by 35 bps to 6.25%. The likely smaller rake hike compared to the three previous 50 bps hikes may be driven by (1) softening domestic inflation (with the October print at 6.77% versus an average of 7.2% in H1-FY23) on base effects, easing commodity prices and lower prices of perishables, (2) the need to assess the impact of rate increases so far (190bps since May 2022) on inflation and economic activity in the face of global headwinds, and (3) a slowing pace of rate increases globally. We see inflation slipping back below the 4+/-2% target band only by March/April 2023, after staying above an average of 6% on a quarterly basis since Q1- 2022. We, therefore, expect the MPC to stay vigilant on inflation risks and maintain its guidance of ‘withdrawal of accommodation’ with no change in stance. We see the terminal repo rate reaching 6.50% with an additional 25 bps rate hike in Q1-2023.”

ING

“Inflation remains higher than it would like but is showing some signs of peaking, while rates have already been raised a lot. It is not inconceivable that it will hike by only 25 bps, less than the 35 bps expected by the market.”

TDS

“We think the RBI can afford to step down the pace of its tightening. The worst of inflation is probably over after CPI inflation hit a high of 7.4% YoY in Sep and has since fallen to 6.8% YoY in Oct. Looking ahead, inflation pressures should moderate further. Sep MPC Minutes also indicated a preference among some members for a tapering of the tightening cycle going ahead. Thus, we expect the RBI to hike by 35 bps to 6.25%.”

SocGen

“The lower October inflation print (6.8% YoY vs 7.4% in September) will soon give way to inflation perking up as the high statistical base effect reverses from December, and we believe the RBI will hike the policy rate twice more, for a cumulative rate hike of 60 bps, of which we expect a 35 bps rate hike in the meeting this week. This will likely be followed by a final hike of 25 bps in February 2023, which would take the terminal rate to 6.5%. We also believe that sustained disinflation would be visible from 2Q23 onward, which would result in India’s real policy rate eventually turning positive after a rather prolonged period of remaining in the negative zone.”