RBI MPC Meet News live updates: Will RBI go for a 40bp rate hike? What to expect

Bank credit increased by 11.04 pc

Bank credit increased by 11.04% to Rs 120.27 lakh crore and deposits by 9.27% ​​to Rs 165.74 lakh crore in the fortnight ended May 20. During the fortnight ended May 21, 2021, bank advances amounted to Rs 108.31 lakh crore and deposits to Rs 151.67 lakh crore, according to the position statement of ‘planned banks’ in India at May 20, 2022′.

Inflation concerns

Inflation has been above the RBI’s target range of 2-6% since the start of this year. According to the latest available data, India’s consumer price index (CPI)-based inflation hit an eight-year high of 7.79% in April. It has been above 6% since January 2022. Bank of America Securities said in a research note that retail inflation is expected to be around 7.1% in May. CPI-based inflation is expected to average 6.8% in the current fiscal year, Bank of America Securities said.

Can surprise hiking

Last month, in its off-cycle monetary policy review, the central bank raised the policy rate by 40 basis points or 0.40% to 4.4%. This was the first increase in the repo rate in nearly two years. The repo rate is the interest rate at which the RBI lends short-term funds to banks.

The off-cycle rate hike fueled expectations of early loading of rate hike decisions by RBI. With the U.S. yet to relent in moderating the pace and quantum of rate hikes, and inflation showing no immediate signs of slowing, it seems another rash decision to raise rates in the upcoming policy

– Lakshmi Iyer, Chief Investment Officer (Debt) and Chief Product Officer of Kotak Mahindra Asset Management Company

Market view

Bond traders will be looking for clarification from Das on specific actions the central bank plans to take to reduce government borrowing costs. 10-year bond yields hit 7.5% on Monday, for the first time since 2019, as the MPC began its three-day meeting.

A fight against inflation

Economists on downgrading growth forecasts

While inflation concerns may keep the RBI focused on prices, near-term growth impulses remain largely flat, according to Nomura Holdings Inc. economists Sonal Varma and Aurodeep Nandi. They do not expect a “significant downgrade” in growth forecasts in politics.

The MPC could reach 6% on the repo rate after the first wave of rate hikes by February, assuming inflation does not fall below 6.5% on average for the current year

– B Prasanna, Head – Global Markets, ICICI Bank

Revision of inflation forecasts?

Economists at Barclays Plc and Citigroup Inc. see the RBI raising its average inflation forecast for the year ending March to more than 6% from 5.7% previously.

Hiking Predictions

Steady plant activity

SBI revises FY23 economic growth forecast upwards

SBI Research forecast India’s economy to grow by 7.5% in 2022-23, an upward revision of 20 basis points from its previous estimate. According to official data, the economy grew by 8.7% in FY22, adding net Rs 11.8 lakh crore in the year to Rs 147 lakh crore, according to the report, adding that it does not was however only 1.5% higher than the pre-pandemic year of FY20.

Private investment has yet to accelerate

With the exception of mining, machinery, metals and chemicals, investment in most sectors remained below pre-Covid levels, according to the CMIE. Investment in the manufacturing sector was 12.1% above pre-Covid levels, led by machinery, metals and chemicals, Nirmal Bang wrote in a note on Friday.

A look at service activity

Activity in India’s service sector hit an 11-year high in May as new business picked up and demand picked up after the economy reopened from Covid-19 lockdowns, revealed a private investigation on Friday, even as input prices recorded an unprecedented rise.

India’s growth forecast drops

The World Bank cut India’s economic growth forecast for FY23 to 7.5% on Tuesday as rising inflation, supply chain disruptions and geopolitical tensions slow the recovery