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RBI likely to increase repo rate by 50 basis points
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IANS | 16 Sep, 2022
The Monetary Policy Committee in the September credit policy is likely
to increase the repo rate by 50 basis points to 5.90 per cent and will
keep stance unchanged, according to a report by Morgan Stanley.
"We
were earlier expecting a 35bp increase,however, sticky inflation and
continued hawkish stance of DM central banks, warrants continued front
loading of rate hikes, in our view," the report said.
The
inflation which is ranging above the upper tolerance band of the Reserve
Bank of India (RBI) for the eighth straight and therefore Morgan
Stanley too expect inflation to remain sticky around 7.1-7.4 per cent in
September as well, driven by increases in food prices as per high
frequency food price trend.
Thereafter, we expect the trend to
moderate but remain above 6 per cent until January/Februaru 2023. Risks
to the inflation outlook are skewed to the upside due to uncertainty
around food inflation trajectory (sowing for rice, pulses is lower YoY),
changes in global commodity prices and possibility of imported
inflation if exchange rate weakens amid dollar strength, the report
added.
Going forward, the key to track in the policy will be: (a)
changes to growth or inflation forecast. While incoming inflation data
is along expected lines,growth for QE Jun was a tad below our
expectations (even RBI's projections), (b) comments around comfort on
external balance sheet in the context of external risks and (c) overall
tone of the policy statement and path on real rate normalization.
The
RBI has lifted the repo rate by 140 basis points and surplus liquidity
has fallen significantly (now $19.1 billion from $89 billion in January
2022), pushing the weighted average call rate to 5 per cent from 3.5 per
cent in April.
However, the normalization in real rates has been
less stark, with real policy rates at -1.6 per cent currently vs. -3.8
per cent in April. The external environment remains challenging, with
generally higher commodity prices vs. pre-pandemic, stronger dollar and
continued hawkish response from DM central banks. While domestic macro
fundamentals are strong, risks from continued elevated commodity prices
need to be tracked.
Against this backdrop, we expect monetary
policy normalization to continue, pegging the terminal repo rate at 6.5
per cent by February 2023. Risks seem skewed to the upside for the
terminal repo rate driven by external factors, which could potentially
keep inflation higher for longer.
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Customs Exchange Rates |
Currency |
Import |
Export |
US Dollar
|
66.20
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64.50 |
UK Pound
|
87.50
|
84.65 |
Euro
|
78.25
|
75.65 |
Japanese
Yen |
58.85 |
56.85 |
As on 13 Aug, 2022 |
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