RBI Preview: Forecasts from six major banks, final strike

India’s Monetary Policy Committee (MPC) is scheduled to announce its Interest Rate Decision on Wednesday, February 8 at 04:30 GMT and as we get closer to the release time, here are the expectations forecast by the economists and researchers of six major banks for the upcoming central bank's meeting.  

RBI is expected to hike the repo rate by 25 basis points to 6.5%. At the last meeting on December 7, the bank hiked rates by 35 bps to 6.25%.

Commerzbank

“We expect RBI to hike rates further, albeit by a slower pace of 25 bps to 6.50%. This follows the aggressive hikes last year of a total of 225 bps. RBI could continue to signal further hikes, albeit more gradually, but it could still provide some support for INR.”

SocGen

“The consensus expectation for RBI’s policy decision is for a 25 bps hike, in line with our forecast. A dovish tilt from the Fed and from certain central banks in the region (Bank Indonesia), has prompted the markets to gradually price in the possibility of a pause in further tightening of financial conditions. If the RBI were to keep with this trend and deliver a ‘dovish’ 25 bps hike, this could potentially be positive for risk sentiment, adding some support to the currency. However, medium-term factors, such as an elevated trade deficit, benign portfolio inflow momentum, and low FX carry, should mean a continuation of INR’s relative underperformance vs rest of Asia FX.”

ANZ

“We expect the RBI to deliver its final 25 bps rate hike, taking the terminal repo rate in the current hiking cycle to 6.50%. Apart from the hike, we also expect a change in stance to ‘neutral’ from ‘withdrawal of accommodation’, and potentially a cut in inflation projections.”

ING

“The current repo rate is at 6.25%, which is 55 bps higher than the prevailing rate of inflation, which has since fallen back into the top end of RBI’s 2-6% tolerance range. Our contention has been that the RBI is at or close to the peak, and we believe that the RBI will put a pause on the hikes to give growth a chance.”

Standard Chartered

“We expect a 25 bps repo rate hike to 6.50%. The reduction in the size of the rate hike can be attributed to the recent softening in domestic inflation to sub-6% (upper end of the 4+/-2% band) primarily on a fall in prices of perishables (especially vegetables). With core CPI inflation remaining sticky at around 6%, the MPC will stay vigilant on inflation and is unlikely to signal any rate cuts in the near term. We also expect the MPC to maintain its ‘withdrawal of accommodation’ stance and do not see any major changes to growth and inflation projections. Given our expectation of inflation easing to 5% in FY24 (year starting April 2023) from 6.7% in FY23, we see this as the last terminal rate hike in the current policy cycle.” 

TDS

“We expect the RBI to go with a final 25 bps hike and further signal that it is done with hikes by switching its stance to neutral from the stance of withdrawal of accommodation. Progress on inflation been encouraging, and the RBI may revise its quarterly CPI forecasts lower for this year and Governor Das may sound less hawkish on inflation compared to the previous meeting.”