Dovish tones in India’s hawkish rate panel may not get into the way of another rate hike as persistent price pressures keep the central bank on the vigil.
(Bloomberg) — Dovish tones in India’s hawkish rate panel may not get into the way of another rate hike as persistent price pressures keep the central bank on the vigil.
The Reserve Bank of India may raise rates by a quarter point in its next meeting in April, with no commitment to go for a pause even as two rate setters warned of the perils of further tightening — that’s the key takeaway of the minutes of Monetary Policy Committee meeting published Wednesday, according to some economists.
“The balance of risks now suggests to us that another hike is likely at the next meeting in April,” said Rahul Bajoira, an economist with Barclays Bank Plc. “The hawkishness in the minutes does not even capture the latest inflation reading that came in higher than expected and back above the RBI’s inflation target.”
Dissent in the six-member rate-setting panel grew, with external members Ashima Goyal and Jayanth Rama Varma cautioning excessive tightening could stifle growth that’s already seen moderating due to a worsening global outlook.
Consumer prices at a three-month high of 6.52% in January along with concerns over a sticky core inflation led the Reserve Bank of India to stay on tightening mode, even as Deputy Governor Michael Patra said “the foot must remain on the brake as we chart our future trajectory”, the minutes showed.
“Post April, a longer than anticipated global interest rate hike cycle, a stickier core inflation metric and untimely disruption of food disinflation trajectory during summer months could keep the doors open for further monetary policy tightening,” said Indranil Pan, an economist at Yes Bank Ltd.
Emkay Global Financial Services Ltd. economist Madhavi Arora expects RBI to be non-committal on future rates path, as the fluid global situation demands frequent macro re-assessments.
Here are comments from more economists on the MPC minutes:
- DBS Bank Ltd.: “Overnight US Fed minutes also reaffirmed their tough stance on inflation, increasing the likelihood of a higher terminal rate. A hawkish RBI MPC stance will help counter the impact of any resultant jump in the US yields/US dollar”
- Nomura Holdings Inc.: “Despite the hawkish speak, there was also a subtle admission among the hawks that policy needs to shift to data-dependent mode. The upside surprise in January inflation has already made the April meeting live, but as policy works with long lags, our base case is a policy pause”
- Deutsche Bank: “Probably the MPC members would have sounded more hawkish, if the statements were recorded after the release of the Jan CPI data. Only time will reveal in the hindsight whether there was any element of overtightening or not”
- State Bank of India: “We developed a interest rate skewness index to measure disagreement in MPC decision. Our current Skewness Index is indicating that going forward, rate hikes will either pause or be of lower magnitude (15 bps)”
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