Home · Business · Oct 7 archive
More RBI rate hikes coming, SBI wants ‘jumbo’ 50 bps increase by December
Confirmed
In Short: Economists at State Bank of India predict a larger-than-usual rate increase from the Reserve Bank of India.
Economists at State Bank of India (SBI) are calling for a 'jumbo' 50 basis points (bps) rate hike from the Reserve Bank of India (RBI) at its December policy review.
The RBI raised the key repo rate by 25 bps on Wednesday, marking the start of a tightening cycle.
SBI’s Group Chief Economic Adviser, Soumya Kanti Ghosh, believes a 50 bps hike is necessary to address the steepening inflation trajectory.
Ghosh argues that global conditions are likely to become volatile soon, making it imperative to avoid incremental rate hikes.
According to SBI’s estimates, headline retail inflation may peak at 6.8% in November, just before the MPC announces its next interest rate decision.
The central bank raised its inflation forecast for the current fiscal year to 5.2% from 5%, with inflation peaking at an average of 6% in the October–December quarter.
A snap poll of 15 economists showed a consensus view for two more rate hikes of 25 bps each, amounting to a 50 bps rise in the repo rate over the next six months.
Some economists, like HSBC’s Pranjul Bhandari, predict only one more rate hike of 25 bps later this year, while others see the repo rate being raised by another 75–100 bps.
The MPC noted that there is evidence of elevated inflation expectations and generalisation of inflation, marking a departure from its previous assessment.
The committee also made its stance more restrictive, changing it to 'calibrated tightening' from 'neutral', indicating that rate cuts are off the table in the near term.
Governor Sanjay Malhotra acknowledged that financial markets could be 'irrational' in the short term, with some indicators suggesting the rupee was undervalued.
What this adds
SBI's call for a 50 bps hike is seen as more aggressive compared to the consensus view of two 25 bps hikes.
The RBI's decision to raise its inflation forecast adds weight to the argument for a more substantial rate hike.
What's confirmed
- "Given the steepening inflation trajectory currently underway, we believe that the December policy cycle could mostly deliver a jumbo 50 bps rate hike depending on the global conditions," they said in a note.
What's still developing
- According to Suyash Choudhary, Bandhan Mutual Fund’s Chief Investment Officer of Fixed Income, the current global macro environment is “exceptionally hawkish” for a country such as India that imports energy, maintains a current account deficit, and needs its “fair share” of dollar inflows.
- “Yes, there is risk of another, especially if growth remains resilient despite a strengthening El Niño. But for now, we don’t see this as a deep rate hiking cycle,” they said.