The Reserve Bank of India's latest repo rate hike is not going to be the last this year, according to various industry experts.
RBI governor Shaktikanta Das-led monetary policy committee on Wednesday hiked the repo rate by 50 basis points to 4.90%.
The 50 basis points repo rate hike comes on the back of elevated inflation. "Given that inflation is expected to remain above 6% through 3Q FY23, RBI has to frontload actions. We continue to see another 60-85 bps hike in the rest of FY23 to manage inflationary expectations," says Upasna Bhardwaj, chief economist at Kotak Mahindra Bank.
According to Mitul Shah, head of Research at Reliance Securities, inflation has proved to be persistently high in the past three years, even as drivers have changed -- from supply bottlenecks to commodities and reopening pressures. "This is the step required to control elevated levels of inflation to bring it down to the expected range of 2-6%," says Shah, adding that he expects gradual rate hikes to continue in FY23.
The market is expecting the RBI to take policy rates to at least pre-pandemic levels, while simultaneously moderating excess system liquidity, says Churchil Bhatt, executive vice-president of Debt Investments at Kotak Mahindra Life Insurance Company. "We expect 10-year Benchmark G-Sec to trade in 7.40%-7.60% range in the near term and expect rate hike by another 60 to 75 bps in FY23," adds Bhatt.
The Reserve Bank of India on Wednesday further hiked its inflation projection for the financial year 2022-23 to 6.7% from 5.7% earlier due to ongoing geopolitical tensions and high input costs.
After the recent reduction in excise duties, domestic retail prices of petroleum products have moderated. International crude oil prices, however, remain elevated, with risks of further pass-through to domestic pump prices, the central bank notes.
Current bottlenecks on supply chains and higher crude oil prices makes inflation truly global, says Srikanth Subramanian, CEO-designate at investment management platform Kotak Cherry. "We believe there will be further hikes to this and as of now Investors can take advantage by locking their investment in medium term good quality bonds and hold it till maturity."
Suvodeep Rakshit, senior economist at Kotak Institutional Equities, says the June policy was a continuation of the off-cycle policy with the focus remaining squarely on inflation.
"The tone of the policy continues to be hawkish and we expect the RBI to continue hiking repo rate to ensure a neutral to marginally positive real policy rate. We expect a 35 basis points repo rate hike in the August policy to 5.25% and repo rate at 5.75% by end-FY2023," Rakshit says.
Along with pushing the repo rate to above the pre-pandemic level, a 35 bps hike would also signal a gradual normalisation in the policy actions while being adequately hawkish, he adds. "We also expect another 50 bps hike in CRR to 5% by end-FY2023 to move the liquidity conditions towards the pre-pandemic levels."
