RBI MPC Meet: Rate Setting Panel Expected To Opt For 25 Bps Hike Amid Falling Inflation, Say Experts

After the announcement of the Union Budget 2023-24, the Reserve Bank of India (RBI) is all set for its first policy review with the Monetary Policy Committee (MPC) meeting starting today. As the central bank walks on the path of controlling inflation and pushing for growth, experts are not too hopeful of a ‘no rate hike’ situation but are expecting a moderate to low rate hike after this MPC concludes on Wednesday. 

As per updates, the RBI MPC policy review is expected to come out on February 8, 2023 with RBI Governor Shaktikanta Das announcing the decision on revision of repo rates. At this point, since inflation numbers are reportedly coming under control and India continues on its path of growth, analysts are expecting a lower interest rate hike of 25 bps and a gradual slower pace of the same.

Madan Sabnavis, Chief Economist, Bank of Baroda believes that the credit policy will be announced against the background of both the Budget 2023 and the Economic Survey. Giving a broader perspective, he says, “While inflation has been trending downwards there has been a tendency for core inflation to remain sticky. Inflation has come down mainly due to lower food inflation which can be volatile. Also, the decision taken this time cannot be reversed soon. Under these conditions, the RBI will pitch for another 25 bps hike in the repo rate which will be the last in this cycle, and then pause. The stance however may change from the withdrawal of accommodation to neutral as liquidity is no longer in a large surplus. In fact based on developments that take place, there may be need to infuse liquidity during the course of the year.”

Since what happens in the world economy also has an impact on India, some experts believe that the US Federal Reserve (Fed’s) decisions with regards to the repo rates also have a bearing on India. On this, Anant Singhania, President, IMC Chamber of Commerce and Industry says, “IMC believes that RBI will closely watch what will US Fed do as recent projections indicate that it will not end rate hikes soon. Besides, Indian banks have enough liquidity as banks have reported high credit growth and so has RBI’s own data up to December 16, 2022. All these indicators plus inflation which is still hovering at 5.72% point to a possibility of a small hike in the upcoming policy announcement in February.”

Relaying similar sentiments, especially that the RBI may take cues from global trends, Shailendra Singh, MD & CEO, BOB Financial Solutions Ltd. says, “The RBI is expected to relook at the repo rate on 8th February. While the Indian growth numbers have been strong, credit demand remains robust and inflation has cooled down, one would expect RBI to hold key rates at the same level. However, we believe that the RBI will take cues from the US where a 25-50 BP hike on the 1st of February looks certain. Given this dynamic situation, it is safe to expect that there will be a 25 BP hike before a stall for the future."  

It must also be noted that Barclays, in a report, suggested that the RBI is expected to deliver another 25 bps rate hike, taking the repo rate to 6.50 per cent. It added that the need for larger rate hikes may decline rapidly as inflation is falling and imported price headwinds may moderate.

Overall, industry experts expect a moderate to low rate hike of around 25 bps, followed by a slower pace in the near future. However, it must be noted that the actual decision will only be known once the RBI MPC meeting ends on Wednesday. While the Indian economy is not entirely expected to stay insulated from global headwinds, basis the Union Budget 2023-24 and the Economic Survey 2023, India is still expected to fair off well as compared to other countries.