By Arch Tuscher Mogri
BENGALURU (Reuters) – The Reserve Bank of India is set to raise interest rates again next week, with a slim majority of economists in a Reuters poll expecting a half-point increase and others expecting a smaller 35 basis point increase.
There was widespread consensus that the Reserve Bank of India would raise interest rates at the September 30 meeting, although there were disagreements over how far they would go as inflation accelerated to 7% and the rupee weakened.
The Reserve Bank of India (RBI) has lagged behind many of its global peers, although inflation has remained above the upper end of its 2-6% target range throughout the year. It has raised rates in three separate moves since May, one of them unscheduled, for a total of 140 basis points and raising the key repo rate to 5.40%.
In the latest Reuters poll, economists are divided in five ways over what the Reserve Bank of India will do at its next meeting.
Just over half, 26 out of 51, said the Reserve Bank of India would raise 50 basis points, bringing the repo rate to 5.90%. Another 20 expected a 35 basis point increase. The remaining five participants identified more modest increases, ranging from 20 to 30 basis points.
While many revised their forecasts from the August survey, and no one expected the Reserve Bank of India to leave rates unchanged this time around, there were no immediate explanations as to why the central bank would opt for a smaller move right now given that most of its peers are trending big. .
The US Federal Reserve just raised its third consecutive hike of 75 basis points and showed no signs of slowing, bringing a new high in two decades and further downward pressure on the rupee.
said Sajid Chinoy, chief Indian economist at JP Morgan.
“But rising food prices in recent weeks and a hawkish Fed will urge the RBI to move 50 basis points, instead of 35, at the September meeting, and will have to move again in December, bringing the final interest rate closer to 6.25%. , 50 basis points higher than the outcome of the global recession we expected.”
However, the survey showed that the Reserve Bank of India (RBI) is taking a softer approach to rates, with no clear majority on where it will stop hiking, but with median forecasts showing the repo rate at 6.00% each quarter. until the end of 2023.
Meanwhile, the rupee, which has fallen nearly 9% this year, hit an all-time low of 80.86/$ on Wednesday, less than analysts had expected in a separate Reuters poll.
A weaker currency is likely to increase the cost of imports and keep inflation high for longer.
The survey also showed inflation to remain above the top of the Reserve Bank of India’s tolerance range until the first quarter of 2023.
Despite GDP growth of 13.5% in the fourth quarter of last year, which made India the fastest growing major economy in the world, the pace of expansion was expected to halve this quarter to 6.2% and slow further to 4.4% in both quarters. the following two.
This may be one of the reasons why the Reserve Bank of India is not following the same pace as other major central banks.
More than 60% of analysts, 23 out of 38 who answered an additional question, said the slowdown in economic growth will play a larger-than-usual role in the Reserve Bank of India’s deliberations on interest rates by the end of the current fiscal year.
The survey showed that economists expected growth to average 6.2% and 6.5% over the next two years.