Analysts anticipate another hike in interest rates in April just a day after the Reserve Bank of India (RBI) raised the repo rate by 25 basis points (bps) on Wednesday. According to a report by Reuters, analysts say that the RBI is likely to raise interest rates once again in April as inflation pressures have been persistent and the US Federal Reserve continues to tighten economic activity.
RBI’s Monetary Policy Committee (MPC), headed by Governor Shaktikanta Das, on Wednesday announced a 25 basis point (bps) hike in repo rate to 6.5 per cent. Maintaining an accommodative stance, the central bank said its commitment to fighting inflation.
On the inflation part, Das said that the retail inflation is expected to average 5.6 per cent in the 4th quarter of 2023-24. “Core inflation remains sticky,” he pointed out. The RBI also kept its policy stance at ‘withdrawal of accommodation’, rather than shifting to ‘neutral’.
Samiran Chakraborty, Citi’s chief India economist told Reuters, “A more aggressive projection of growth-inflation profile and (policymakers’) cautious commentary has led us to add another 25-bps hike in April 2023 to our base case,”
“By retaining the stance, the RBI left room open for further tightening. We continue to expect the RBI to hike 25 bps further in the April meeting, on sticky core inflation and a reversal in vegetable prices,” said Santanu Sengupta, chief India economist at Goldman Sachs.
ING and QuantanEco Research also expect that the RBI will hike the repo rate at its next policy decision, however, they say the rupee’s movement and the Fed’s rate outlook will also likely influence the RBI decision.
“We think the developments on the external front played an equally important role in RBI taking a hawkish tone,” Pranjul Bhandari, chief India and Indonesia economist at HSBC, said.
“And even though the rupee has been amongst the more stable Asian currencies in 2022 (as per RBI’s analysis in its policy statement), we note that the rupee has underperformed the region in the last few weeks,” Bhandari added.
The rupee is now trading at 82.62 to the dollar, less than 1 per cent above its October 2017 record low of 83.29, the report said, adding that the rupee and other Asian currencies may continue to be under pressure due to the shift in expectations surrounding the US Fed rate outlook.
Investors currently anticipate two 25-bps rate increases in the Fed’s upcoming meetings. SBI Research noted that the ongoing rise in Fed funds rate expectations has made it challenging for central banks in emerging countries to make policy decisions.