With vote split, RBI's MPC might hike repo rate by 25 bps: Experts

by IANS |

Chennai, Feb 7 (IANS) Will there be a convergence or divergence among the members of the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) on the 25 basis points (bps) policy rate hike, experts debate.

However, the experts believe that the MPC may hike the repo rate -- the rate at which RBI lends to the banks -- by 25 bps to 6.50 per cent on Wednesday.

The RBI's MPC meeting is on between February 6-8 to decide on the policy rates.

At the MPC meeting held during December 5-7, 2022, Prof. Jayanth R. Varma, a member voted against the resolution to hike the repo rate by 35 basis points to 6.25 per cent.

"The decision of RBI MPC in the first policy meeting (Feb-23) of CY23 is unlikely to be based on consensus. While we believe there is a higher likelihood of a modest 25 bps (or even lower) hike in the repo rate, the probability of a pause has also increased due to the last two monthly inflation prints and the relatively conservative borrowing projections for FY24," Suman Chowdhury, Chief Analytical Officer, Acuite Ratings & Research said.

Not ruling out a possibility of a split in the MPC on the rate hike Madhavi Arora, Lead Economist, Emkay Global Financial Services in a report said the vote split could be 4-2 or even 3-3 with the RBI Governor Shaktikanta Das' veto.

"The last MPC minutes saw the two diverging members argue that (1) India has limited evidence of a wage-price spiral or demand-led inflation and (2) that the current policy rate is sufficient for inflation to glide back to the target," Arora said.

According to Arora, the MPC tone will likely be still cautious and data dependent, as inflation is still around the 6 per cent upper tolerance mark, even though it is poised to ease.

"With another shallow hike of up to 25 bps, the one-year ahead estimated real repo rate will likely get fairly positive (implying a pause, although not necessarily an end to the cycle). We still think that the RBI would not turn too restrictive but reckon the situation is fluid and the extent of global disruption and disinflation will remain key to the RBI's reaction function ahead," he remarked.

"Inflation has come down substantially over the last three months and showing further downward momentum. External conditions have also eased with slower rate hikes in the US. The RBI's foreign exchange reserves have also increased over the last few months. All these developments should provide comfort to the RBI. We expect the RBI will pause the rate hiking cycle in the February meeting and will maintain the repo rate at 6.25 per cent for extended period. It might also change the policy stance to neutral," said Pankaj Pathak, Fund Manager, Fixed Income, Quantum AMC.

According to Pathak, the bond market should react positively. "We expect bond yields to go down gradually though elevated bond supply will limit the downside of yields."

Retail inflation for December 2022 fell to a year's low of 5.72 per cent, mainly due to low food prices, especially those of fruits and vegetables.

This was the second consecutive month when it has remained within the RBI's tolerance band of 2 per cent to 6 per cent.

However, economists are worried as the core inflation remains on the higher side.

Latest News
IPL 2023: If you talk about an impact player, Hardik is the ideal impact player, says Zaheer Khan Fri, Mar 31, 2023, 02:58 PM
Mediterranean diet can reduce death from heart attack in high risk patients Fri, Mar 31, 2023, 02:50 PM
Palestinians mark 47th anniversary of Land Day amid calls to end Israeli occupation Fri, Mar 31, 2023, 02:47 PM
3K schools in Assam run by single teacher, lack basic facilities: Minister Fri, Mar 31, 2023, 02:46 PM
Syrian air defences shoot down Israeli missiles over Damascus Fri, Mar 31, 2023, 02:38 PM
Karnataka polls: CM Bommai hints at fielding Vijayendra against Siddaramaiah in Varuna Fri, Mar 31, 2023, 02:34 PM
World Test Championship: Ross Taylor backs India pace attack to fire in final Fri, Mar 31, 2023, 02:30 PM
Reddit's new Transparency Center to serve as hub for its safety, security info Fri, Mar 31, 2023, 02:28 PM
Netflix rolls out ad-supported plan for Apple TV users Fri, Mar 31, 2023, 02:24 PM
Australians warned of looming Covid waves, encouraged to take booster dose Fri, Mar 31, 2023, 02:22 PM
Philippines' foreign investments yield net outflows in Feb Fri, Mar 31, 2023, 02:20 PM
Rising Covid cases: Tamil Nadu enforces mask rule for govt hospitals Fri, Mar 31, 2023, 02:17 PM
Sharmila detained during protest at TSPSC office in Hyderabad Fri, Mar 31, 2023, 02:16 PM
Khattar invites industrialists to set up bases in Haryana Fri, Mar 31, 2023, 02:13 PM
High cost of living has badly affected saving ability of Pakistanis Fri, Mar 31, 2023, 12:42 PM