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Economists expect rate cuts from next review on inflation concerns



RBI policy review: Change in stance likely from accommodative to neutral in April

Economists and analysts have tightened liquidity on the back of the February policy reverse repo hike and a possible repo rate hike in March/April as they believe the increase in inflationary pressures surprises them and termed them “unexpected”. ” has been termed “unexpected” more than expected. Dovish policy stance to support growth.

While CRISIL economists expect a hike in the reverse repo rate in February, which will limit the repo rate to 25 bps from the current 65 bps, and a 25 bps hike in the repo rate in March 2022, HDFC Bank’s Abhik Baruah will normalize the policy. lets see. If the Omicron virus is to be managed, the February meeting to lift a leg with the reverse repo hike.

A change in stance is likely in April, from accommodative to neutral and an increase in the repo rate by June or August policy 2022, Barua said while predicting his cautious outlook for inflation surpassing the RBI’s forecast by a wide margin.

Describing the December policy review as “more modest than we expected”, the central bank did little to provide any further guidance on the path to future policy rate hikes, but added that “paramount” was the support of policy developments. focused on doing.

“This is in contrast to other global central banks such as the US Fed which are turning to monetary policy tightening,” Baruah said. The policy decision today leans on the side of caution, continues its support for growth and O’Micron Takes caution at risk.”

On inflation, he said, while the RBI expects inflation to remain unchanged at 5.3 per cent till March, indicating that it considers inflation to be more transient than permanent in nature. “But we do not view the inflation trajectory as benign and expect inflation prints to surprise upwards and average 5.6 per cent for FY22, driven by higher input and fuel costs and lower base effect. It is done.

The risk of prolonged core inflation on domestic expectations and the risk of further tightening in the system remains and continues to trend above 6 per cent from this month,” he cautioned. On the policy impact on Gsec yields, Which fell to 6.36 per cent after the policy announcement. From 6.39 per cent on Tuesday and 38 per cent before the policy announcement, he expects 10-year bond yields to 6.35-6.40 per cent by the end of December and 6- to 6.35 per cent by the end of March. Will trade close to 4-6.5 percent.

Crisil said a more sluggish stance was based on a stable but uneven economic recovery. “Owing to these factors, we expect RBI to continue with calibrated normalization in the coming months.”
The brickwork rating, despite full support for growth, indicates a continuation of its gradual move towards normalizing its monetary policy, as shown by limiting MSF to 2 per cent of NDTL from 3 per cent of NDTL with effect from January 1, 2022. gives.

British brokerage Barclays said today the central bank halted the normalization process that began in October and indicated it would maintain a growth-focused normalization of policy. The brokerage was expecting a hike of 20 bps in the reverse repo rate this month.

The MPC’s position is highly favourable, and even though the RBI has prepared the ground for a very modest exit from its overly lenient policy stance, the brokerage expects the central bank to keep growth risk at the fore and center of its deliberations.

The brokerage also expects a hike in the repo rate in the second and third quarters of 2022, as it sees inflation to remain above 5 per cent on the forecast horizon. Radhika Rao of Singapore-based lender DBS said the RBI has underestimated inflation risks, which according to her cannot be ruled out “as the inflation print in September-October is expected to be short-lived and CPI from the upper end of inflation.” RBI’s target range for early 2022, lifted by the passthrough of volatility in perishable foods, telecom price hikes, sticky inflation expectations and elevated input prices.

These may require an upward revision of the inflation forecast in the forthcoming rate review.”
He also said that the policy stance points to a long and gradual road towards policy normalisation. The guidance emphasized that the priority is to secure growth impulses and preserve the policy room to meet this objective, which is at odds with global policy shifts, particularly the US Fed.


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