The Reserve Bank of India will raise interest rates by 35 basis points to 6.25% in December, according to economists polled by Reuters, who expect another modest move to curb inflationary pressures early next year.
A strong two-thirds majority said it was still too early for the central bank to keep an eye on inflation, which slowed to 6.77% in October, staying above the upper end of the RBI’s 2-6% tolerance band for the whole year .
Expectations of a more modest rate hike follow a series of 50 basis point hikes by the RBI, and coincide with expectations that the U.K. The Federal Reserve will move to a smaller rate hike at its policy meeting this month.
Thirty-three, or more than 60%, of 52 economists polled between November 22-30 said the RBI would raise its key repo rate by 35 basis points to 6.25% at its December 5-7 policy meeting.
Eleven said it would continue with hikes of 50 basis points, while another eight respondents said 25 bps.
Sakshi Gupta, chief India economist at HDFC, said, “A hike of 50 bps would be too aggressive as inflation has started showing signs of moderation and is progressing in line with RBI’s projections.”
“The terminal rate in this cycle is expected to be 6.50% and its path is likely to be split between two rate hikes – 35 bps in December and then 25 bps in February.”
With inflation expected to remain above the 4.00% midpoint of the RBI’s target for the next two years, while rates are still set to go slightly higher, most economists see risks to an upside to their forecasts.
The Reserve Bank of India will also have to consider the possible pressure on the rupee if it lags behind the expected hike in US rates.
Abhishek Upadhyay, Senior, Abhishek Upadhyay said, “The risk that the Fed tightens even more than the current pricing of around 5% is reasonably high and could increase pressure on emerging market central banks such as the RBI.” ” Economist at ICICI Securities Primary Dealership.
Despite poll media tipping the repo rate to top out at 6.50% by the end of March, there was no consensus among economists on the RBI’s final rate move in this cycle.
Economists were evenly split between no hike and a 25 bps hike at the February meeting, with 44 of 52 expecting that outcome. Among the rest, five predicted a 35 bps hike, and there were lone forecasts for 10 bps, 15 bps and 40 bps.
The survey also shows the expectation that inflation will average 6.7% for the fiscal year ending March 31, and then fall to 5.2% in fiscal 2023-24.
Radhika Rao, senior economist at DBS Bank, said a sharp rise in commodity prices, supply-side shocks, resilience in domestic demand engines and a prolonged global strengthening cycle that would put pressure on the rupee were “risks” that could persuade the RBI. Huh. to consider extending its rate hike cycle.”
Gross Domestic Product (GDP) growth for July-September was reported at 6.3%, matching the RBI’s own forecasts.
More than 70% of economists, 20 out of 28, who answered an additional question taken before the GDP release, said it was still too early for the RBI to shift its focus from inflation to growth.
Economists answering a separate question peg India’s potential economic growth rate at 6%-7% for the next 2-3 years. They forecast an average annual growth rate of 6.8% and 6.2% for this fiscal year and the next, respectively.
(Reporting by Shalu Srivastava; Polling by Vijayalakshmi Srinivasan and Veronica Khongwir; Editing by Simon Cameron-Moore)
(Except for the headline, this story has not been edited by NDTV staff and is published from a syndicated feed.)
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