Economists and analysts expect the Reserve Bank’s Monetary Policy Committee to continue rate hikes until the policy rate hits the neutral rate of 6-6.5% by the end. some exercice.
The MPC delivered the third consecutive rate hike since May on Friday with a 50 basis point increase in the latest round. Today, the repo rate is 5.40%, which is higher than the pre-pandemic level. The policy rate was 5.15% in February 2020.
“We believe the current policy rate hike cycle is likely to continue until the Reserve Bank of India reaches what is known as a ‘neutral policy rate’,” said Sunil Kumar Sinha, senior economist at India. Ratings.
According to him, the neutral policy rate is the short-term policy rate that should stabilize the economy in the long term by allowing the economy to achieve its growth potential while keeping inflation within the target range and inflationary expectations well. anchored.
In the current macroeconomic environment, “we estimate that this neutral key rate is between 6 and 6.5%”, he added.
He also pointed out that future rate hikes, in addition to being guided by geopolitical developments, would also be data driven.
Swiss brokerage UBS Securities said it expects the MPC to raise the repo rate further to 5.75% by the end of FY23. Going forward, increases in Rates would depend on the data, given that uncertainties remain high over the outlook for growth and inflation, he added.
Tanvee Gupta-Jain, chief economist at UBS Securities India, based his calls for a rate hike on the widening current account deficit, which is expected to hit 3.5-4% of GDP in the first half of this fiscal year. .
Rahul Bajoria, chief economist at Barclays India, said he expected another 50bp hike by December and noted that policy was focusing significantly on the external position.
Radhika Rao, senior economist at Singaporean lender DBS, said with inflation likely to remain above target until the start of FY24, further hikes are expected and expects a further upside by 75 basis points by March, with the current level already at the same level as the third quarter. from FY19.
The tone of the inflation assessment was cautious, pointing to current “unacceptable” and uncomfortable levels, as the RBI highlighted the risk that sustained high inflation could destabilize inflation expectations and hurt growth going forward. medium term, she said.
“We maintain our call for further hikes of at least 75 basis points by March 2023, subject to inflation approaching its peak at 2QFY23 and gradually declining below 6% in the March quarter” , Mr. Rao said.
Dharmakirti Joshi, chief economist at Crisil, said the MPC had raised the rate by more than 25 basis points from the pre-pandemic level, meaning it sees price pressures unfolding.
The frontloading of the repo rate hike was necessary because inflation, despite some slowdown, is still well above the upper tolerance limit and monetary policy is impacting it with a lag, he said.
According to Joshi, the third rate hike in the current fiscal year also partly resolves the risks of contagion from an aggressive stance by the US Federal Reserve and other systemically important central banks.
(Except for the title, this story has not been edited by NDTV staff and is published from a syndicated feed.)