The lower-than-expected inflation in December has slightly increased chances of the Reserve Bank of India (RBI) not hiking rates in the upcoming February policy, however, a majority of economists and bankers polled by CNBC-Tv18 still expect a hike.
As per the poll, only 20 percent of the respondents said that there may be a ‘pause’ in February while 80 percent of the people polled said they are expecting a 25 basis points (bps) hike.
Separately, 80 percent of the people polled also expect the February hike to be the last hike in the cycle and that 6.5 percent will be the terminal rate. The remaining 20 percent believe that there is still a possibility of yet another hike with the peak coming to 6.75 percent.
Earlier in December, the RBI Governor Shaktikanta Das-headed MPC decided to opt for a lower rate increase of 35 basis points (bps) in lending rates, which took the repo rate to 6.25 percent. With this hike, the lending rate rose to its highest since August 2018. The committee, however, had decided to keep its stance unchanged and keep the focus on fighting inflation.
In the February policy, about 30 percent of the bankers and economists surveyed expect the stance to get tweaked. There will be a hike but the RBI may tweak the stance to either indicate a neutral stance or to say that ‘April onwards we will not hike or we will be data dependent,’ but some such a dovish tilt is expected, several respondents said.
While December’s inflation figure coming below expectations shall be one reason for this, another is the US data which is also coming in-line or in some areas even below expectation.
The feeling is that there is no pressure on the rupee now. With a combination of dollar becoming weaker, dollar index becoming weaker, and crude remaining towards the $80 per barrel mark, the RBI forecasts are predicated on $100 per barrel cost of crude.
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Therefore, for multiple reasons, the expectation is that a softer RBI or a Monetary Policy Committee (MPC) in the February 8 policy cannot be ruled out.
The next meeting of the MPC is scheduled from February 6 to February 8, 2023.
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