The inflation prints are expected to harden moving forward, on account of a combination of factors such as the poor monsoon, rising commodity prices and an unfavourable base effect, setting the stage for another rate hike in December as of now, ICRA Chief Economist Aditi Nayar said.
Mumbai: With the RBI changing its monetary policy stance from ‘neutral’ to ‘calibrated tightening ‘, experts on Wednesday said that the central bank would go for another rate hike of up to 50 basis points in its upcoming December policy.
The next bi-monthly monetary policy is due on December 4.
Earlier in the day, the Reserve Bank of India raised its benchmark interest rate by 25 basis points to 5.50 per cent, its first increase in nearly four years, and signalled that further hikes could follow as rising inflation and a weakening currency prompt a policy pivot.
Anticipating the rate hike by the RBI, Bajaj Finance has raised interest rates on its fixed deposits by 15 to 40 basis points across all tenures from 12 to 60 months.
According to HDFC Bank Principal Economist Sakshi Gupta, “We expect cumulative rate hikes by the central bank to the tune of another 50-75 bps over the next few months. The risk of a more aggressive rate hike cycle hinges on whether the current West Asia conflict and rise in oil prices continue to linger on for longer.”
The inflation prints are expected to harden moving forward, on account of a combination of factors such as the poor monsoon, rising commodity prices and an unfavourable base effect, setting the stage for another rate hike in December as of now, ICRA Chief Economist Aditi Nayar said.
There is a strong possibility that the Reserve Bank of India could raise the repo rate again at its December monetary policy meeting as inflation risks remain elevated, Crisil Chief Economist Dharmakirti Joshi told ANI on Wednesday.
“I think you can’t rule that out and I think the likelihood is definitely there. So, the two options are that they may pause or they may raise. Cutting rates is off the table. So, I think I would say there is a strong possibility of a rate hike in December as well,” Joshi said.
With domestic demand remaining strong, he said there was also a risk of higher costs being passed on to consumers, making inflation more broad-based.
“When the demand in the system remains strong, then input costs get passed on to the end consumers and the inflation becomes generalised,” he said.
Food prices remain another key uncertainty, particularly if El Niño conditions intensify and affect crops.
“The inflation from the food side is, the risk is tilted to the upside,” Joshi said, adding that further weather disruptions could have implications for both crops and inflation.
At the same time, Joshi said economic growth remains relatively strong. Crisil expects India’s GDP to grow around 7 per cent in the current fiscal year, close to the RBI’s revised projection of 7.1 per cent.
Joshi expects the first half of the year to remain strong, while growth may moderate in the second half as the impact of higher prices, the West Asia conflict and the monsoon becomes more visible.
“The first half will look quite good. The second half will look somewhat slower,” he said, adding that the economy was still growing close to its potential.
On the rural economy, Joshi said agriculture is more diversified than in the past, with animal husbandry, poultry and fisheries providing some protection against rainfall-related shocks.
He also pointed to higher irrigation coverage as a buffer.
“Irrigated area is now close to 59%. It was 49% a decade back,” Joshi said.
However, he cautioned that a severe monsoon shock could still weaken consumption.
“If the monsoon shock is too large, then it will have a moderating impact on consumption as well. But as I said, there are buffers also to offset that to some extent,” he said.
Agencies