Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research
RBI's policy action of Jun'22 has been broadly in line with our expectation although the tone is slightly more hawkish. The front loaded repo rate hike is in progress with MPC increasing the benchmark rates by 50 bps and taking the cumulative figure to 90 bps in the current cycle. We believe that more rate hikes are likely in the next 2-3 policy meetings given that RBI has revised its headline inflation forecast sharply upwards to 6.7% from the earlier 5.7%. Clearly, this would urge RBI to focus on the complete 'withdrawal of accommodation' since CPI will remain significantly higher than the 6.0% upper band of MPC. However, the extent of the subsequent hikes will depend on the inflation print over the next few months, the performance of the monsoon and its impact on the food prices as also on the effectiveness of the price control measures taken by the government. At this point, we expect repo rate to touch at least 5.5% by the end of the fiscal FY23 or a cumulative rate hike of 150 bps.
However, RBI has not announced any further hike in CRR since the liquidity in the system has already moderated. RBI also has not made any changes to the growth forecast of 7.5% for FY23 which is in line with our forecasts given the positive impact of a stronger service sector and the increased capital expenditure in the public sector.
RBI's rate hike implies further and higher rate increases in consumer loans as well as deposit rates. By end FY23, we expect retail home loan and deposit rates across all categories to rise by at least 100 bps from the current levels.