The headline retail inflation in India likely to go below 6 per cent by the fourth quarter of this fiscal year, bringing an end to the current cycle of rate hikes, analysts have told Reuters.
According to the report, after the release of minutes from the Reserve Bank of India’s (RBI’s) policy committee on Friday, analysts said the central bank may hike repo rates by 50-60 basis points by December.
“We expect the RBI to deliver two 25 bps rate hikes at the September and December meetings, taking the repo rate to 5.90 per cent,” Rahul Bajoria, chief India economist at Barclays told Reuters.
India’s consumer inflation dipped to 6.71 per cent in July, easing for the third month in a row, but remained above the RBI’s mandated target band of 2-6 per cent for a seventh straight month.
Despite signs of inflation having peaked in India, the outlook remains highly uncertain, members of the RBI’s monetary policy committee said in their report.
According to the economists, bringing retail price rise closer to RBI’s target of 4 per cent was essential to sustain economic growth over the medium term. Some analysts said a steep 50 basis points increase in repo rate was also possible next month.
“The possibility of a 50 bps hike in September can’t be ruled out, if the (U.S.) Fed delivers another 75 bps hike,” Gaura Sen Gupta, India economist at IDFC First Bank said in a note.
Earlier this month, the RBI raised the bank’s key lending rate by 50 bps to 5.40 per cent, its third increase in four months to curb rising price pressures.
The RBI has hiked repo rate by 140 basis points since May.
“In our view, the RBI is effectively being cautious in its policy approach, especially ahead of the winter cycle, when energy prices could be volatile,” Bajoria of Barclays said.
Nomura retained its expectations of terminal repo rate being at 6.00 per cent with 35 bps and 25 bps hike in September and December respectively. “While the minutes confirm that more hikes are coming…the terminal policy rate is not too far away,” analysts Sonal Varma and Aurodeep Nandi added.