Some MPC members may push for more aggressive rate hike

Some members of the Monetary Policy Committee (MPC) may push for a more aggressive rate hike to tame the rising inflation. This comes even as Shaktikanta Das, Governor, Reserve Bank of India, on Saturday said that inflation may ease by the second half of 2022-23.

Sources said that notwithstanding the Governor’s outlook, some members of the MPC favour rate hikes to ensure that inflation comes back in the range of 2-6 per cent. Upside risks to inflation remain from persistence of geopolitical tensions, direct and indirect impact of elevated global commodity prices, especially crude oil prices, and risks of further pass-through to domestic pump prices despite recent excise duty cuts, and rising raw material prices along with a weakening rupee. 

The June policy revised RBI’s estimate by 100 bps to 6.7 per cent with average inflation expected to remain above 6 per cent till Q3 this fiscal.

In the May meeting, Jayanth R Varma, had called for more than 100 basis points of rate increases. In the June meeting, he had said that taking into account the 40 basis points hike in May, his preference would have been for an increase of 60 basis points. “However, I have decided to go along with the majority view of 50 basis points for the same reason as in May: a difference of opinion of 10 basis points is not material enough to be elevated to a dissent,” Varma had said in the June MPC meeting.

Shashanka Bhide, another member of MPC, told Bloomberg that “Larger initial hikes are needed given the persistence of the supply constraints.”

A Kotak Securities report said, “We pencil in further repo rate hikes of 85 bps in the rest of FY2023 (including 35 bps hike in the August policy) and a CRR hike of 50 bps by end-FY2023. With the inflation readings in Q4FY23 expected to moderate below six per cent, we expect a pause in the February meeting as the MPC assesses the impact of monetary tightening on growth-inflation dynamics.”

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