MUMBAI: With credit growth continuing to grow much faster than deposits, the Reserve Bank of India is expected to raise interest rates by 25 basis points this week, the last rate hike in years. current economic cycle. The central bank also needs to raise interest rates to keep up with global central banks as the US Fed, European Central Bank and Bank of England all raised rates last month.
Last month RBI Governor Shaktianta Das suggested a pivot policy with a stable exchange rate. “Central banks have begun what appears to be a pivot towards raising or pausing lower interest rates. At the same time, they continued to re-emphasize their determination to bring inflation closer to the target. Speaking at a bond-dealer conference in Dubai on January 27, Das said that high policy rates for longer periods seemed a clear possibility. The Governor will announce the Monetary Policy Committee’s decision on interest rates on February 8.
According to Madan Sabnavis, chief economist, Bank of Barodamonetary policy committee will persist with another rate hike to bring repo rate to 6.5% (from 6.25% now) for this cycle before pausing. The government’s decision to tie up fiscal consolidation will make the MPC’s task easier. “The government borrowing program is unlikely to exert unusual liquidity pressure as it has been kept unchanged at FY23. Deposit growth should get better, which will add to the solvency. Liquidity. With the economy slowing, credit will also tend to be adjusted at around 11-13% lower in 2024, said Sabnavis.
The annual growth of bank credit is 16.5% compared to 10% of bank deposits.
Previously, the RBI had said that rate hikes would take several quarters to have an impact. However, a 25 basis point increase is considered certain as the 4% target is still far from December inflation at 5.72%. “With the 4% target out of sight, we expect the RBI to raise rates by 25 basis points at its upcoming policy meeting, bringing the repo rate to 6.5%. Given the slowing growth rate, we don’t think there will be another rate hike in the future (though risks remain). And since core inflation is likely to remain elevated, we don’t expect rates to be cut in 2024,” said Pranjul Bhandari, chief economist for India, HSBC.
Rahul Bajoria, economist at Barclays concurs with the view that MPC will raise rates by 25 basis points and this will be the last rate hike in this cycle. “We also think there is a chance the policy stance will be changed to neutral, like last time in December 2018, when the repo rate was 6.50%. Furthermore, inflation has started to moderate and is likely to fall further in the coming months,” Bajoria said.
Last month RBI Governor Shaktianta Das suggested a pivot policy with a stable exchange rate. “Central banks have begun what appears to be a pivot towards raising or pausing lower interest rates. At the same time, they continued to re-emphasize their determination to bring inflation closer to the target. Speaking at a bond-dealer conference in Dubai on January 27, Das said that high policy rates for longer periods seemed a clear possibility. The Governor will announce the Monetary Policy Committee’s decision on interest rates on February 8.
According to Madan Sabnavis, chief economist, Bank of Barodamonetary policy committee will persist with another rate hike to bring repo rate to 6.5% (from 6.25% now) for this cycle before pausing. The government’s decision to tie up fiscal consolidation will make the MPC’s task easier. “The government borrowing program is unlikely to exert unusual liquidity pressure as it has been kept unchanged at FY23. Deposit growth should get better, which will add to the solvency. Liquidity. With the economy slowing, credit will also tend to be adjusted at around 11-13% lower in 2024, said Sabnavis.
The annual growth of bank credit is 16.5% compared to 10% of bank deposits.
Previously, the RBI had said that rate hikes would take several quarters to have an impact. However, a 25 basis point increase is considered certain as the 4% target is still far from December inflation at 5.72%. “With the 4% target out of sight, we expect the RBI to raise rates by 25 basis points at its upcoming policy meeting, bringing the repo rate to 6.5%. Given the slowing growth rate, we don’t think there will be another rate hike in the future (though risks remain). And since core inflation is likely to remain elevated, we don’t expect rates to be cut in 2024,” said Pranjul Bhandari, chief economist for India, HSBC.
Rahul Bajoria, economist at Barclays concurs with the view that MPC will raise rates by 25 basis points and this will be the last rate hike in this cycle. “We also think there is a chance the policy stance will be changed to neutral, like last time in December 2018, when the repo rate was 6.50%. Furthermore, inflation has started to moderate and is likely to fall further in the coming months,” Bajoria said.
