At its upcoming meeting, which is set for April 6–8, the monetary policy committee (MPC) is expected to vote in favour of a 25 basis point increase in the policy repo rate, according to economists, as the February MPC review minutes highlighted internal members’ elevated concerns over core inflation and hawkish communication. The February MPC review minutes, according to Radhika Rao, senior economist at DBS, expressed concern about inflation due to geopolitical unpredictability, fluctuating petroleum prices, and weather-related occurrences. The possibility of inflation outside of the food sector intensifying further called on policymakers to take calculated measures. Invoking growing growth risks, the two opposing members urge a delay to allow the lagged effects of policy initiatives to manifest.
Due to the elevated January inflation outturn, the sticky core, and the likelihood that February 23 inflation (released in mid-March) might also stay close to 6.36.5%, before turning data dependent on the path ahead, a majority of the MPC is likely to vote for a 25 bp hike in April, with an unchanged stance, according to Rao. The February MPC minutes showed higher internal member concerns over core inflation, while a few members were worried about overtightening, according to the analysts at Kotak Securities Ltd. On the growth front, the majority of members, however, expressed comfort.
The team of KSL economists, Upasna Bhardwaj, Suvodeep Rakshit, and Anurag Balajee, stated that they “now expect the RBI MPC to hike the repo rate by another 25 bps in the April policy to 6.75 per cent, given (1) persistently elevated core inflation; (2) volatile food prices; (3) increasing likelihood of a higher terminal rate in the US; and (4) uncertainty in commodity prices amid ongoing geopolitical conflicts and scale of revival in China.
“In our base case, we factor in another 25 bps increase by the MPC, with a 42 or 33 split, bringing the repo rate to 6.75 percent. However, he said, “We believe that the government’s policy moves in March, such as passing through reduced oil prices, may tilt the scales in favor of the MPC not acting.
