In its latest Ecowrap report, SBI Research said the Reserve Bank of India is likely to hike rates by a smaller magnitude than other emerging market central banks in its December policy starting today. And is the “new normal”.
SBI Research said in the report that it believes that 6.25 per cent could be the final rate in this monetary policy tightening cycle.
The three-day Monetary Policy Committee meeting of RBI has started from today. Financial markets will keenly watch the Committee’s rate hike stance, if any, given that inflation is still above the target band of 6 per cent.
“The good news is that with capital inflows picking up sharply in November, cash may get an unexpected buffer of rupee injection in lieu of dollar purchases/reserve building by the RBI,” the report said.
The central bank had already raised the key policy rate by 190 basis points to 5.9 per cent since May to cool down domestic retail inflation, which has remained above the RBI’s upper tolerance limit for three quarters now. Retail inflation in October stood at 6.77 per cent as against 7.41 per cent in the previous month.
Under the flexible inflation targeting framework introduced in 2016, if CPI-based inflation is outside the 2-6 per cent range for three consecutive quarters, the RBI is deemed to have failed to manage price increases.
An out-of-turn meeting of the Monetary Policy Committee (MPC) of the Reserve Bank of India was held in early November to discuss and draft a report to be sent to the central government for failing to uphold the inflation mandate was.
The meeting was called under Section 45ZN of the Reserve Bank of India (RBI) Act 1934, which deals with steps to be taken by the central bank if it fails to meet its inflation-targeting mandate. Details about the special meeting are not officially in the public domain.
SBI Research said that inflation will be on the downside after December 2022.
“Fears about the impact of unseasonal rains on CPI inflation (especially on food CPI) are likely to be unfounded. While India received 54 per cent above normal rainfall in October 2022, India’s excess rainfall during October-November 2022 23 per cent higher than normal… farmers have become wiser and more aware of the ground reality… for example, longer duration crops are being planted to cope with unseasonal rains,” the report I have been told.
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)
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