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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.
