RBI PREVIEW: FORECASTS FROM FOUR MAJOR BANKS, STRONG RATE HIKE

Reserve Bank of India (RBI) meets Wednesday, June 8 at 04:30 GMT and is expected to hike rates 50 bp to 4.90%. Here are the expectations as forecast by the economists and researchers of four major banks regarding the upcoming central bank’s decision.

ANZ

“We expect the RBI to hike the repo rate by 50 bps to 4.90%, making another step to restoring the policy rate to its pre-pandemic 5.15%. There are risks that with the recent excise duty cut on fuel, the monetary policy committee may choose to hike by less than 50 bps, for example, by 40 bps. In any case, inflation is set to remain acute for the rest of FY23, perhaps north of 6% in all quarters.”

STANDARD CHARTERED

“India’s Monetary Policy Committee (MPC) is likely to hike the repo rate by another 40 bps to 4.80%. We acknowledge the risk of a 50bps hike if the MPC aims to reach the pre-pandemic repo rate level of 5.15% sooner. We expect policy guidance to be hawkish, with the MPC likely to sharply raise its FY23 (ending March 2023) CPI inflation forecast from 5.7% currently (our forecast: 6.6%). Meanwhile, a marginal downward revision to the MPC’s FY23 GDP growth forecast, to 7.0% from the current 7.2% is also likely (our forecast: 7%). With inflation likely to stay above 6% (the upper threshold of the 4 +/-2% target range), we expect rate increases at every meeting, taking the repo rate to 5.75% by end-FY23.”

TDS

“Inflation is surging, having hit 7.8% YoY in April, well above the RBI’s 2-6% target range amid ongoing supply pressures. We think the RBI will need to step up its efforts given that real rates remain negative while inflation will likely remain elevated over the coming months. As such we expect a series of hikes ahead, with the repo rate likely to peak at 5.9% in Q1 23.”

SOCGEN

“We expect the RBI to raise the policy rate by 50bp (potentially in a range between 35-50bp) (taking the repo rate to 5.9%). Given earlier complacency on the transitoriness of inflation, the RBI now needs to engineer a growth slowdown to reduce the pace of passthrough of high input costs to output prices and prevent the high inflation scarring the economy over the long term. And, with the bank formally shifting the focus of monetary policy from supporting growth to containing inflation, we expect it to maintain an aggressive stance. This would mean the RBI intervening in the forex market to prevent stronger depreciation of the currency. Also, with government borrowing expected to be stepped up following the recent fuel tax cut, the RBI might also focus on yield containment to prevent a dislocation of the government’s fiscal position. We, therefore, see the possibility of the RBI announcing additional rounds of ‘operation twist’ and/or going the Bank Indonesia’s (BI) way by announcing some form of temporary debt monetisation scheme. There could also be a hike in the CRR to drain excess liquidity from the banking system.”