Goldman Sachs does not expect RBI to dial down its stance in the next policy
The RBI is taking a cautious approach to the economy. While a rate hike may be on the horizon, it is important to note that the RBI is considering the impact of various factors, including food prices and the exchange rate, on the economy.
The latest testimony by the Federal Reserve Chairman Jerome Powell to Congress, that rates have to remain higher for longer, and that they may even have to rise at a faster clip has pushed up yields all over the world, and in India, the yield curve mildly inverted yesterday.
The percentage of the US market that now expects a 50-basis point (bps) hike on March 22, when the FOMC meets, has shot up to 76 percent from 9 percent a month ago. Likewise, the number of people who now expect 100 bps of further hikes by June this year from the Fed, taking the Fed funds rate from 5.5 percent to 5.75 percent has shot up to 55 percent – that is most of the market from only 3 percent a month ago.
The RBI is taking a cautious approach to the economy. While a rate hike may be on the horizon, it is important to note that the RBI is considering the impact of various factors, including food prices and the exchange rate, on the economy.
Also Read | RBI's proposed bad loan provisioning regime may not impact PSU banks significantly, says SBI chairman
In an interview with CNBC-TV18, Santanu Sengupta, India Economist at Goldman Sachs said that the RBI is not expected to dial down to a neutral stance any time soon.
He said, “We are not expecting the RBI to dial down to a neutral stance anytime soon. So, our expectation would be that they hike 25 bps in April policy and retain the policy stances.”
In fact, some participants anticipate a 25-bps hike in March, while others believe a 50-bps hike remains a close call. This news may come as a surprise to many individuals who were hoping for some relief from the RBI soon.
Sengupta also estimates that the Consumer Price Index (CPI) for February will come in at 6.5 percent. While this is high, it is important to note that the mean reversion for food prices is something the RBI will look through. This means that any increases in food prices are likely to be temporary and will not have a long-term impact on the economy.
When it comes to the dollar-rupee exchange rate, Sengupta expects it to be more flattish over the year. This means that there will not be a significant increase or decrease in the exchange rate between these two currencies.
Also Read | Despite US Fed pressure and inflow challenges, here's why the Indian rupee is a bright spot
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