Acuité Ratings & Research comments on RBI MPC Dec'22

Suman Chowdhury, Chief Analytical Officer, Acuité Ratings & Research

"RBI has hiked the repo rate by 35 bps to 6.25% in the last MPC meeting of the current year, completely in line with market consensus and our forecasts. We believe that RBI's stance has remained moderately hawkish with the continuation of its stance of "withdrawal of accommodation" which implies that further rate hikes may take place in the upcoming policy meets if the inflation print continues to be above RBI's expectations.

Essentially, the MPC has kept faith in the resilience of the domestic economy and has only marginally revised its GDP growth forecast to 6.8% in FY23 despite the increased global headwinds. This is consistent with our view that domestic demand has seen a healthy momentum in the current year and is likely to sustain given the expected recovery in rural demand. In particular, the high credit growth of 17% YoY and incremental credit of Rs 10.6 lakh cr disbursed in Apr-Oct'22 have been highlighted as an indication of domestic demand. On the other hand, RBI remains cautious about the headline inflation print and will keep an "Arjuna's eye" on it, highlighting its intent to bring it sustainably down to below 6% within the next two quarters. This opens up the possibility of a further round of rate hikes in Feb-23 and a potential terminal rate of 6.5% by the beginning of FY24. RBI has also made it clear that liquidity calibration will continue to take place and market participants have to get used to a lower level of liquidity surplus in the system.

Acuité expects a further rise in bank deposit rates over the next two quarters to the extent of 50-100 bps given the narrative from MPC and the continuing momentum in credit growth. The pass-through of higher rates to home loans may start to impact the demand for housing, particularly in the mid to high ticket segment."

Source : Equity Bulls

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RBI MPC Dec2022 RateIncrease AcuiteRatings