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“We expect the repo rate to be raised by 35 bps to 5.25 per cent, after a cumulative 90 bps increase in this cycle yet far. This will take the rate back to late-2019 level. In the absence of an outright change in stance to tightening, the guidance is likely to emphasize on the preference to withdraw accommodation to anchor inflationary expectations,” said Radhika Rao, executive director and senior economist at DBS Group Research.
“We expect RBI MPC to hike benchmark repo rate by 50 bps as CPI continues to rule above RBIs threshold band. Commentary maybe neutral/dovish as CPI trend seems to be following RBIs forecast for FY 2023. Key to watch also would be the guidance if any in the future course of rate moves,” said Lakshmi Iyer, chief investment officer (Debt) & head products , Kotak Mahindra Asset Management Company.
The RBI has raised interest rates twice so far in this cycle — first 40 bps hike at an “off-cycle” monetary policy meeting in May, followed by 50 bps in June. With soaring inflation and the rupee trading near a record low, India’s central bank is expected to increase interest rates to catch up with its global peers.
“Inflation and GDP growth projections for FY23 at 6.7 per cent and 7.2 per cent are likely to be held unchanged,” said Rao. “Few developments in recent weeks have raised expectations that the peak of inflationary concerns is behind us, which includes signs of a peak in commodity price indices, including crude oil. Besides two rate hikes, there had been a host of measures to provide interim relief,” she further added.
“RBI is likely to take rates above a level deemed ‘neutral’ (which we think is closer to 5.25 per cent) before slowing down or looking at becoming more data dependent in this rate hike cycle,” said Abheek Barua, HDFC Bank’s chief economist .
The key driver for the policy decision will be the inflation readings and its trajectory.
Retail inflation in India had eased to 7.01 per cent in June, but the print stayed above the RBI’s tolerance ceiling of 6 per cent for the sixth consecutive month. Consumer prices in India had surged to an eight-year high of 7.80 per cent in April. The overall food inflation came in at 7.75 per cent in June as compared to 7.97 per cent in the preceding month, while fuel and light inflation climbed up to 10.39 per cent in the month of June in contrast to 9.54 per cent in May.
Core inflation has stayed above 6 per cent.
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