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RBI Hikes Key Rate By 0.50% To Pre-Pandemic Levels: Highlights

What Experts Said On RBI Policy After Rate Hike To Highest Since 2019

The Reserve Bank of India’s key policy repo rate was raised by 50 basis points on Friday, the third increase in as many months to cool stubbornly high inflation.

Upasna Bhardwaj, Chief Economist, Kotak Mahindra Bank, Mumbai

“The MPC’s decisions have been in line with our expectations. Given the increasing external sector imbalances and global uncertainties, the need for front-loaded action was imperative. We continue to see a 5.75% repo rate by December 2022.”

Garima Kapoor, Economist, Institutional Equities, Elara Capital, Mumbai

“To rein in inflationary pressures and anchor inflation expectations, the MPC hiked the repo rate by 50 bps and retained its stance on withdrawal of accommodation.”

Nikhil Gupta, Chief Economist at MOFSL group

The RBI hikes the repo rate by 50bp to 5.4%, more than the consensus (5.25%) and our expectation (5.15%). Further, there was no change in the stance or any relief in the Governor’s statement, indicating a posible pause in the next policy. The rate decision was also taken unanimously today.

Aurodeep Nandi, India Economist and Vice President at Nomura

The RBI’s 50bp hike was largely in line with market expectations, that was divided between it and a 35bp hike. Very importantly, with the RBI retaining the policy stance of “withdrawal of accommodation”, the implicit message is that rates are yet to reach neutral territory, and that more rate hikes are warranted – a view that we agree with. The RBI continues to signal that all options are on the table, which is a prudent strategy given the elevated levels of uncertainties on both, growth as well as inflation.”

Acuite Ratings & Research comments on RBI MPC Aug 5, 2022

The RBI continued to sound relatively hawkish while announcing a hike of 50 bps which is the third hike in the current cycle, aggregating to 140 bps. This has taken the repo rate to 5.40%, 25 bps higher than the pre-pandemic repo level. While a rate hike was given in the current context, it has been slightly higher than our expectations although consistent with the market expectation of front loading.

What is noteworthy is that the central bank has not revised its existing growth or inflation forecasts despite indications of a global slowdown, recessionary conditions in the developed economies, and the moderation already witnessed in commodity prices. Possibly, it would like to go through more data points over the next two months before reviewing these forecasts. At this point, the central bank believes that India’s growth in the current year would be largely resilient with the mitigation of risks of a monsoon failure and a healthy pickup in rural demand.

While we await the inflation print for Q2FY23, we believe that rate hikes going ahead will be moderate and there can even be a pause if the CPI data throws up figures nearer to 6.0% over the next 2-3 months. For now, however, one can expect further deposit and lending rate hikes by banks, given the improved credit demand in the economy

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