Reserve Bank of India MPC Meet Next Week - What to Expect: Industry experts from SBI, UBS, Goldman Sachs, Barclays, and Bank of Baroda all agree that the six-member rate-setting panel at the Reserve Bank of India (RBI) will likely raise rates by 50 basis points (bps) next week, bringing the final rate to 6.25 percent by December. The next meeting of the RBI's Monetary Policy Committee (MPC) is set for September 28–30, 2022. At this meeting, the bimonthly monetary policy will be set.
Economists from State Bank of India (SBI), Goldman Sachs, Barclays, UBS, and Bank of Baroda all want the monetary policy committee to raise the repo rate by 50 bps at its next meeting. This would bring the total repo rate increase since May to 290 bps, which would bring the rate to 5.90 percent.
Soumya Kanti Ghosh, the group chief economist at SBI, says that a half-point increase in the repo rate seems likely as a strong response to shocks from the outside. He said, "We expect the repo rate to be 6.25 percent at its highest point in the cycle." In December, policymakers are likely to raise rates by 35 bps for the last time.
After 40 months, liquidity has become short, which looks like another problem for the RBI, said Ghosh. This may force the banking regulator to help the market by changing the Cash Reserve Ratio (CRR) and doing Open Market Operations (OMOs).
Tanvee Gupta-Jain, the chief economist at UBS Securities India, said that she expects the RBI-MPC to speed up the rate hike cycle and raise the repo rate by another 50 bps, up from 35 bps previously, at their meeting on September 30. This would mean that by December, the terminal repo rate would be 6.25 percent instead of 6 percent.
Jain, when talking about the good side, said that the large current account deficit, high Consumer Price Index (CPI), and stretched fiscal position are mostly caused by factors on the supply side, not by easy credit pushing domestic demand.
Rahul Bajoria, the chief economist at Barclays India, also said that the repo rate would go up by 50 basis points (bps) next week and by 35 basis points (bps) in December. "We now expect another rate hike of 50 basis points in 2023 (previously it was 75 basis points)," he said. "This would bring the repo rate to 6.75 percent by April 2023."
Bajoria also thinks that when commodity prices go down, the RBI-MPC will change its stance to neutral.
The chief economist at Bank of Baroda, Madan Sabnavis, said that recent changes in the foreign exchange market could lead to a higher amount of 50 bps to keep up with other markets and keep investors interested. He also said that a 25–35 bps increase would have shown that the RBI is sure that the worst of inflation is over.
Santanu from Goldman Sachs said that there would be a 50-bps hike in September and a 35-bps hike in December. There is a chance that the forecast will be too low if commodity prices rise in Q4. Sengupta said, "We now expect 50 bps of more rate hikes in 2023, down from 75 bps before. This would bring the repo rate to 6.75 percent by April 2023."
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