RBI to continue or hit the pause button on rate hike?
Chennai, Feb 5 (IANS) With the retail inflation down, if the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) pause on the policy rate hike or increase it by 25 basis points to 6.50 per cent will be known on February 8.
The RBI's MPC will be meeting on February 6-8 to decide on the rates.
"Inflation has come down substantially over the last three months and showing further downward momentum. External conditions have also eased with slower rate hikes in the US. The RBI's foreign exchange reserves have also increased over the last few months. All these developments should provide comfort to the RBI. We expect the RBI will pause the rate hiking cycle in the February meeting and will maintain the repo rate at 6.25 per cent for extended period. It might also change the policy stance to neutral," said Pankaj Pathak, Fund Manager- Fixed Income, Quantum AMC.
According to Pathak, the bond market should react positively. "We expect bond yields to go down gradually though elevated bond supply will limit the downside of yields."
Retail inflation for December 2022 fell to a year's low of 5.72 per cent, mainly due to low food prices, especially those of fruits and vegetables.
This was the second consecutive month when it has remained within the RBI's tolerance band of 2 per cent to 6 per cent.
However, economists are worried as the core inflation remains on the higher side.
The consumer price index (CPI) based inflation was at 5.88 per cent in November 2022, according to data released by the Ministry of Statistics and Programme Implementation on Thursday. In October 2022, it was at a higher band of 6.77 per cent.
Food inflation stood at 4.19 per cent in December 2022, lesser than 4.67 per cent level of November 2022, as per the official data.
Apart from fruits and vegetables, prices of oils and fats as well as meat and fish also fell in December 2022 compared to November 2022.
On the inflation numbers Rajani Sinha, Chief Economist, CARE Ratings (NS: CREI ) had told IANS: "Retail inflation has eased more than expected in December, bringing the headline print below the RBI's upper tolerance for the second straight month."
The softening is largely attributed to the decline in prices of vegetables, which helped offset the rise in costs of other products of the food basket such as cereals, milk and meat. However, the concern is that core CPI inflation remains sticky above 6 per cent, with evidence of high inflation in the services sector. "From the policy perspective, we believe that RBI's move at the February MPC meeting will be a close call with core CPI inflation remaining sticky," she had added.
At the MPC meeting held during December 5-7, 2022 Prof. Jayanth R. Varma, a member voted against the resolution to hike the repo rate by 35 basis points to 6.25 per cent.
Add Chart to Comment
We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:
- Enrich the conversation
- Stay focused and on track. Only post material that’s relevant to the topic being discussed.
- Be respectful. Even negative opinions can be framed positively and diplomatically.
- Use standard writing style. Include punctuation and upper and lower cases.
- NOTE: Spam and/or promotional messages and links within a comment will be removed
- Avoid profanity, slander or personal attacks directed at an author or another user.
- Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
- Only English comments will be allowed.
Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.
Drop an image here or Supported formats: *.jpg, *.png, *.gif up to 5mb
Drop an image here or