At its April 8 meeting, the RBI prioritized containing inflation over supporting growth, even keeping the repo rate unchanged. Research firm Nomura said in a note that the minutes of the Monetary Policy Committee (MPC) meeting confirm that India is on the cusp of a policy normalization cycle and that a A 25 basis point rate hike at the June meeting is likely.
“At this stage, the RBI appears focused on removing the ultra-accommodative in place, with incremental moves of 25bps, although we believe a faster 50bp hike in subsequent meetings (August/October) should not be ruled out,” he added. mentioned.
Furthermore, a Reuters poll showed that the RBI will raise its repo rate in June and will rise at a faster rate than expected just a few weeks ago. While 42 expected a 25 basis point hike to 4.25%, only one expected a 50 basis point hike.
In a Reuters poll from April 20-25, all but three of 46 economists expected the RBI to raise the repo rate for the first time since 2018 in June.
At its meeting on April 8, the RBI had unanimously chosen to change its political position by remaining accommodating”
as long as necessary to revive and sustainably support growth“to remain accommodating”
while focusing on withdrawing accommodative measures to ensure inflation remains on target going forward while supporting growth”.
Goldman Sachs said in a note that this shift in stance in their view is a two-step policy toward shifting to a more neutral stance through the June policy. Nirmal Bang economist Teresa John also expects RBI’s stance to shift to “neutral” with the possibility of a rate hike in June 2022.
However, MPC member Jayanth R. Varma in the minutes of the meeting argued that in today’s “extremely uncertain” situation, it is very important that the MPC does not issue any guidance. prospect that would tie his hands.
Data shows that in recent months, the pick-up in food inflation contributed the most to headline inflation, inflation in grains, vegetables, spices and protein-based foods such as eggs, meat and fish being the main drivers. Due to the Russian-Ukrainian war, supply chain disruptions and most recently Indonesia’s palm oil export ban, consumers’ pockets are expected to suffer in the weeks to come. to come.
“Given the high inflation path and a very realistic chance that the MPC will face its first official ‘failure’ of the monetary policy framework, the RBI will shift to ‘neutral’ in June and embark on a cycle short of rate hikes,” Rahul Bajoria, chief India economist at Barclays, told Reuters.
Further increases are expected to follow in the coming quarters, taking the repo rate to 4.75% and 5.25% by the end of 2022 and the end of 2023 respectively, from 4.50% and 5.00% in the survey previous.