Wrap-Up Of Sell-Side Views Post RBI Decision on Friday

The general consensus is for further tightening, albeit not as the same pace as recent meetings. This reflects the policy rate getting closer to neutral, along with signs that inflation pressures are moderating. The main differences in sell-side views rest with how high rates will go over the next 6-9 months.

• JPM: "All told, we still expect the terminal rate to be lower than before the global environment deteriorated. Back in June we had foreseen a terminal rate of about 6.15%. However, we now expect the terminal rate to be 5.75%, with the RBI delivering a final hike of 35 bps at the October policy review. "
• ING: "If the destination for the RBI is to get real rates (policy rates minus inflation) to approximately zero, then continuing at even a 25bp pace over the remainder of the year (in line with our forecasts) should see the repo rate rise to 5.9% by the year-end."
• Goldman Sachs: " We estimate the RBI to slow down the pace of hikes to 35bp in the September meeting and 25bp in the December meeting to take the repo rate to 6% by end 2022. We continue to expect 75bp further rate hikes in 2023, but acknowledge downside risk to the forecasts if commodity prices remain soft and global growth slows down materially next year."
• TD: "We expect the RBI to follow up with more moderate tightening ahead; next hike likely at its meeting at the end of September. We maintain our terminal rate expectation of 6.0% by Q1 2023."
• Barclays: "Over the next two meetings (September and December), we expect the RBI to maintain inflation management as its key priority, until inflation returns to the target range. We now expect the RBI to deliver a 25bp rate hike at the September policy review and shift to a neutral policy stance. Beyond that, we expect RBI to deliver one more 25bp rate hike in December, taking the repo rate to 5.90%."
• ANZ: "Given the RBI’s one-year ahead inflation forecast for Q1 FY24 at 5% and their neutral rate estimate of 0.8-1.0%, a heuristic estimate for the terminal repo rate lands closer to 5.75-6.00%, which the market pricing is also reflecting now. This is however lower than our 6.25% forecast, but error bands around forecasts remain large and dependent on the movement of risk factors. If inflation risks don’t flare up again, the September meeting could see a smaller hike of 25-35bps."
• UOB: "After kicking off with the surprise unscheduled 40bps move on 4 May and the 50bps hikes in Jun and Aug, we think that the RBI will add on another 50bps rate increases in the two remaining MPCs in 2022 to bring the repo rate to 5.90% by the end of the year. "
• DBS: In our view, this necessitates the monetary policy committee to continue to incrementally tighten policy in rest of FY23. We maintain our call for at least another 75bp hikes by Mar23, subject to inflation nearing its peak in 3Q22(2QFY23) and gradually easing below 6% in the Mar23 quarter.
• SocGen: "We retain another policy rate hike of 35bp by the RBI most likely during the October meeting before calling an end to the current, short-lived rate hike cycle that would take the terminal policy rate to 5.75%."