RBI MPC’s Expected Policy Decision In December: Although India’s CPI inflation eased to a three-month low of 6.77 per cent in October, it is still above the RBI’s target level of 4 per cent (+- 2 per cent). The high inflation level, experts said, is expected to prompt the RBI’s Monetary Policy Committee to go for yet another repo rate hike. They, however, said the key policy rate hike this time will be less aggressive (25-35 basis points) as against 50 bps earlier, followed by an extended pause.
Also Read: India’s Retail Inflation Eases To 3-Month Low Of 6.77% In October; Both Rural, Urban Prices Soften
The RBI has hiked the repo rate by 50 bps each in the previous three policy reviews, apart from a 40-basis-point hike in an off-cycle monetary policy in May this year. In all, the central bank has raised the key policy rate by 190 basis points in the four back-to-back rate hikes since May to control inflation.
The next RBI MPC meeting is scheduled to take place during December 5-7, and the rate hike decision will be announced on the last day of the meeting (December 7).
Suvodeep Rakshit, senior economist at Kotak Institutional Equities, said, “Given the moderation in the domestic inflation trajectory, some incipient moderation in US inflation, and the possibility of a global slowdown, we expect the RBI to hike repo rate by 35 bps to 6.25 per cent in the December policy, followed by an extended pause, to watch for the impact of past rate hikes, liquidity tightening, and global macro scenario.”
He also said the CPI inflation is expected to glide down gradually to around 6 per cent by February 2023 and closer to 5 per cent in March 2023.
According to the latest official data, India’s retail inflation in October eased to 6.77 per cent, which is the lowest in three months. The food inflation, which is responsible for nearly half the CPI basket, declined by 159 bps to 7.01 per cent. In September, the CPI inflation had accelerated to a five-month high of 7.41 per cent.
Aditi Nayar, chief economist at ICRA, said, “The near-term inflation outlook is clouded by a few risks such as the recent sequential rise in prices of global commodities, supply disruptions for perishables owing to excess rains, and robust demand for services. Nevertheless, a high base is expected to aid in further softening the YoY CPI inflation to 6 per cent in November 2022.”
She added that with the CPI inflation remaining solidly above the MPC’s 6 per cent tolerance level in October 2022, another rate hike is certain in the December 2022 monetary policy review. “However, its size is likely to be tempered to 35 bps, from the 50 bps seen in the last three reviews, given the moderation in CPI inflation in October 2022 and the expectations of a further dip in November 2022.”
Sunil Sinha, principal economist at India Ratings & Research, said the RBI has front-loaded monetary tightening and the chances of further rate hikes would be more data-dependent. “The frequency and magnitude of rate hikes are expected to decline. We expect a status quo or at best a 25-bp rate hike in the December 2022 monetary policy.”
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