Instant view - India cenbank raises rates by 25 bps as widely expected
Feb 8 (Reuters) - The Reserve Bank of India hiked its key repo rate by 25 basis points (bps) on Wednesday as expected but surprised markets by leaving the door open to more tightening, saying core inflation remained high.
The central bank said that its policy stance remains focused on the withdrawal of accommodation.
Most analysts had expected a hike on Wednesday to be the final increase in the RBI's current tightening cycle, which has seen it raise rates by 250 bps since May last year.
GARIMA KAPOOR, ECONOMIST, INSTITUTIONAL EQUITIES, ELARA CAPITAL, MUMBAI
"While today's policy decision is largely on expected lines, we believe the maintenance of stance and emphasis on sticky core inflation leaves the room open for further policy action. MPC is expected to become data dependent hereon with credible and sustainable signs of ease in core inflation being the key indicator."
YUVIKA SINGHAL, ECONOMIST, QUANTECO RESEARCH, NEW DELHI
"RBI delivered a smaller 25 bps hike with repo rate now at 6.50%. While it acknowledged that past cumulative rate action of 250 bps needs to be evaluated in its impact, it appears that this may not have been the last rate hike of the current cycle. The demand to see a decisive moderation in inflation and to tailor monetary policy to ensure a durable disinflation process keeps the door open for yet another 25 bps hike in April 2023, especially with Q4 FY24 retail inflation forecast pegged at 5.6%."
SUVODEEP RAKSHIT, SENIOR ECONOMIST, KOTAK INSTITUTIONAL EQUITIES, MUMBAI
"The RBI, as expected, hiked the repo rate by 25 bps. The split mandate of 4-2 was also as expected. The stance too was unchanged, which is in line with the excess liquidity continuing to be tightened. We see the RBI remaining concerned about inflation, especially core inflation.
"We expect inflation to average around 5.2% in FY2024, with adverse risks to growth likely to increase. The RBI will likely become increasingly data-dependent and look at the impact of past rate hikes on inflation-growth dynamics. We expect the RBI to pause from the next policy onwards, with a likely shift in stance to 'neutral' as the liquidity tightens further over March-April."
ADITI NAYAR, CHIEF ECONOMIST, ICRA, GURGAON
"The MPC's (monetary policy committee) growth outlook for H2 FY2024 is higher than our projections, albeit similar to our assessment of the potential GDP growth. This may have fed into the Committee's higher-than-expected inflation projection for that period, underpinning the continued cautiousness signalled by the unchanged stance.
"With the stance continuing to focus on 'withdrawal of accommodation', the window remains open for further rate hikes if inflation exceeds the MPC's projections. We expect the MPC to remain vigilant and data-dependent in FY24."
MADHAVI ARORA, LEAD ECONOMIST, EMKAY GLOBAL, MUMBAI
"The RBI MPC expectedly increased the policy rate by 25bps with a balanced tone, albeit non-committal and data dependent, partly as inflation is still around the 6% upper-tolerance mark, even though it is poised to ease. They have maintained the current stance of 'withdrawal of accommodation' to keep policy flexibility ahead, while they acknowledged the recent pace of policy tightening.
"The fast-evolving world order has meant that data-led policy repricing keeps markets on their toes, and they keep swinging on the timing and extent of policy pivots.
"However, on a net basis, even as global tightening is still expected, the anticipation of a slowing pace of hikes has eased financial conditions somewhat. This hints that EM Asia central banks, including RBI, could breathe easier."
DEVENDRA PANT, CHIEF ECONOMIST, INDIA RATINGS, MUMBAI
"The MPC are broadly on expected lines. We believe this is the last rate hike in the current rate hike cycle, unless there are commodity- or monsoon-related shocks. However, for FY24, the growth projections at 6.4% appear optimistic."
SAKSHI GUPTA, PRINCIPAL ECONOMIST, HDFC BANK, GURUGRAM
"The tone of the policy was hawkish, highlighting resilient growth momentum coupled with concerns over sticky core inflation, global uncertainty and rising commodity prices.
"At this stage, another rate hike of 25 bps at the next policy meeting cannot be ruled out as the central bank kept the door open for further tightening and said it would remain watchful of the inflation trajectory."
SUJAN HAJRA, CHIEF ECONOMIST AND EXECUTIVE DIRECTOR, ANAND RATHI SHARES AND STOCK BROKERS, MUMBAI
"The 25-bps rate hike by the RBI today has been in line with the consensus expectations. We, however, felt the possibility of a rate pause this time around was at least 50%. On the inflation front, the major softening in India post April 2022 was the main reason for us to expect a standstill in this policy.
"On the contrary, the RBI seems to have been more bothered about the high and sticky core inflation for more than a year. More importantly, the continued rate hikes by the Bank of England, the ECB and the U.S. Federal Reserves, and the implications of these in the foreign exchange markets, influenced the decision of the RBI.
"Unless there is an unexpected flare in inflation, we would expect the RBI to maintain an unchanged policy rate for the remainder of 2023. This would be positive both for the debt and equity markets."
RUPA REGE NITSURE, GROUP CHIEF ECONOMIST, L&T FINANCIAL HOLDINGS, MUMBAI
"Today's repo rate hike of 25 bps appears to be guided more by the consideration of external sector stability than price stability. This is in line with the approach adopted by many emerging market central banks."
KUNAL KUNDU, INDIA ECONOMIST, SOCIETE GENERALE, BENGALURU
"The easing trajectory of inflation would further support the move to pause, even though inflation is expected to remain above the RBI's median target of 4.0%.
"We believe this will be the final hike in the current rate hike cycle and the RBI would likely embark on a pause before enacting a rate cut by end 2023-early 2024 to support the economy. Yet, there is a risk of RBI might decide to hike after a pause as elevated core inflation remains a worry and the continued tight labour market in the U.S. may lead to Fed going further than what the market is currently expecting."
UPASNA BHARDWAJ, CHIEF ECONOMIST, KOTAK MAHINDRA BANK, MUMBAI
"The MPC delivers a hike in line with our expectations, given the need to anchor inflationary expectations. Further, the reinforcement of the need for action, as inflation remains above the medium-term target of 4%, signals the MPC's focus on inflation.
"Going ahead, as inflation begins to moderate, we expect real rates to reach near pre-pandemic (levels) soon and hence the need for incremental rate hikes remains limited. We expect a prolonged pause on rates with a likely shift in stance in the coming April policy."
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