Mumbai:
Retail inflation could fall below 6 percent in the fourth quarter of this fiscal year, ending the current cycle of rate hikes, analysts said over the weekend.
After releasing the minutes of the central bank’s monetary policy committee on Friday, analysts said the Reserve Bank of India (RBI) could raise repo rates by 50-60 basis points by December.
“We expect the RBI to make two 25bp rate hikes at its September and December meetings, bringing the repo rate to 5.90 percent,” said Rahul Bajoria, India’s chief economist at Barclays.
India’s consumer inflation fell to 6.71 percent in July, declining for the third straight month, but remaining above the RBI-imposed target of 2-6 percent for the seventh straight month.
Despite signs that inflation has peaked in India, the outlook remains highly uncertain, members of the central bank’s monetary policy committee said in their report.
According to the committee, it was essential to bring the increase in retail prices closer to RBI’s target of 4 percent to support economic growth in the medium term.
Some analysts said a steep 50 basis point rise in the repo rate was also possible next month.
“The possibility of a 50 basis point hike in September cannot be ruled out if the (US) Fed passes another 75 basis point hike,” said Gaura Sen Gupta, India economist at IDFC First Bank in a note.
Earlier this month, the RBI raised the bank’s key borrowing rate by 50 bps to 5.40 percent, the third hike in four months to stem rising price pressures.
The RBI has raised the repo rate by 140 basis points since May.
“In fact, in our view, the RBI is being cautious in its policy approach, especially in the run-up to the winter cycle when energy prices can be volatile,” Barclays’s Bajoria said.
Crude oil inventories could tighten again as European buyers look to alternative supplies to replace Russian oil, pending European Union sanctions, which come into effect on December 5.
Nomura maintained its expectations of a 6.00 percent final repo rate with increases of 35 bps and 25 bps respectively in September and December.
“While the minutes confirm further hikes to come… final interest rates are not too far off,” said analysts Sonal Varma and Aurodeep Nandi.