The Reserve Bank of India (RBI) is likely to moderate the pace of interest rate hikes in its December policy starting Monday (December 5) because of softening inflation expectations both in India and abroad and signs of slower rate hikes in the US and concerns over a global economic downturn.
Nine out of 10 banks polled by ET expect the RBI to hike rates by 35 basis points — 0. 35 of a percentage point — or less at the December 5-7 meeting of the monetary policy committee (MPC).
While five of the nine expect a rate hike of 35 bps, two expect it will be in a range of 25-35 bps, another two project a 25 bps increase. The only forecast outside this is for the central bank to continue with a half-percentage-point increase this time as well.
Since May 5, the RBI had already raised the key policy rate by 190 basis points 5.9 per cent to check retail inflation that has stayed above the central bank’s upper threshold for over three quarters now.
Worth mentioning here is that the retail inflation based on Consumer Price Index (CPI) dipped to 6.77 per cent in October — a sharp fall from 7.41 per cent in the previous month.
“With the Fed indicating its desire to slow down the pace of rate hikes to 50 bps clips and the October US CPI momentum easing relative to expectations, thereby reducing the depreciation pressure on the rupee, we think the monetary policy committee will be comfortable to dial down the pace of rate hikes to 35 bps in December,” the financial daily quoted Kaushik Das, Deutsche Bank’s chief India economist, as saying.
Domestic retail inflation is expected to slow down closer to 6 per cent and Federal Reserve chairman Jerome Powell indicated that the US could slow the pace of its rate increases.
Economists at UBS Securities said: “We continue to expect headline inflation to moderate from 6.8 per cent registered in October towards 5-5.5 per cent in FY24. We expect the MPC’s policy outlook to be data dependent, contingent upon Fed action, inflation trajectory and financial stability,” expecting a 25-35 bps increase.
Data released last week demonstrated that India’s economic growth for the September quarter slowed to 6.3 per cent from 8.4 per cent a year earlier and 13.5 per cent in the previous quarter, due to slower growth of the manufacturing and mining sectors. Economists are of the view that India’s growth to slow down further with Nomura predicting it at 4.7 per cent in 2023 against an expected 6.8 per cent increase this year.
The daily cited Bandhan Bank chief economist Siddhartha Sanyal as saying that the RBI may be aware of not going overboard with rate increases.
