August 04, 2022 02:41 GMT
- The broad-based consensus is for the RBI to hike rates when the outcome of this week’s policy meeting is announced on Friday. The main question is by how much rates go up by. The Bloomberg consensus sees the policy rate going to 5.25% from the current 4.90%, hence a 35bps rise. This is also our expectation but it is a close and a 50bps hike wouldn't be a surprise.
- This uncertainty reflects mixed cross currents in terms of the outlook. On the one hand inflation pressures remain very elevated, just over 7% YoY and well above the RBI’s target range of 2-6%. There are signs that pressures are easing though.
- While inflation will be the bigger focus point for this meeting, RBI Governor Das may also be mindful of jeopardizing economic momentum around tightening the policy rate too quickly. Our sense is that with signs inflation pressures may ease, this gives the RBI some room to be a little less aggressive in terms of the pace of tightening.
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