Should India Gear Up For 4th Repo Rate Hike in 2022 As RBI Panel Meets Next Week?

Things have changed for India on the economic front in the past two months. Where, on one hand, in August, the country was looking forward to rosy growth prospects on account of the downward spiral of inflation, almost 50 days later, higher food cost and reduced growth outlook has put India's fiscal expectations in a bind. Therefore, all eyes are locked on the next week meeting of the Reserve Bank of India's (RBI)

6-member Monetary Policy Committee (MPC). What is adding to India's conservative economic outlook is the worsening global situation vis-à-vis Ukraine & Russia. With Russia announcing renewed partial military mobilization, it looks increasingly difficult to maintain a positive market sentiment. The U.S. Federal Reserve has already taken a tough stand to counter the historically high inflation rate and rest of the world is likely to follow suit. Speaking to media, Soumya Kanti Ghosh,

SBI's Group Chief Economist says India could be looking at half a percentage point hike in the repo rate, owing to the "external shocks." He said, "We expect the peak repo rate in the cycle at 6.25%. A final rate hike of 35 bps is expected in December policy." The fact that on Wednesday, the US Fed announced its third consecutive rate hike of 75 basis points, is likely to inspire the RBI panel into taking a similar stand. Fed Reserve Chairman Jerome Powell had earlier said, "We want to act aggressively now, and get this job done, and keep at it until it's done." Powell also said, by way of placating the roiled market sentiment that he wished there was a "painless way" to do this. The ripple effect on other economies and markets is undeniable. Therefore, when the RBI panel meets on September 28, the decision by the US Fed Reserve will definitely weigh on their minds. The RBI has to play a hawkish role for the domestic monetary policy because even though India's inflation problem isn't gigantic yet, our foreign exchange reserves are being used up at an alarming pace. For now, the Dalal Street is gearing up itself for a 35-50 bps rate hike on September 30, which is expected to rein in inflation. Nomura's Chief India Economist, Sonal Varma, echoes that sentiment, when she says, "We expect a 35 basis points hike in September and 25 basis points in December for a 6% terminal rate." Since May 2022, the RBI has continued to hike rates upto 5.4%. The August hike of 50 basis points was also a unanimous vote. So, is the stage set for a 50 bps rate hike yet again? Let's wait for September 30th! Vishal Kaul (The author is an ex-banker with 20plus years of experience in lending and finance.)