Summary of this article
Nomura expects a 25-basis-point RBI rate hike in December.
SBI Research projects a 50-basis-point hike amid inflationary pressures.
RBI’s October minutes highlight inflation risks and economic growth concerns.
The Reserve Bank of India’s (RBI) December monetary policy meeting is in focus after Nomura and SBI Research presented different forecasts for the next repo rate decision. Nomura expects a 25-basis-point increase, while SBI Research has retained its projection of a 50-basis-point hike.
The RBI’s Monetary Policy Committee (MPC) raised the repo rate by 25 basis points to 5.50 per cent at its October meeting. The committee also shifted its policy stance from neutral to calibrated tightening. The next MPC meeting is scheduled for December 2 to 4.
Nomura Forecasts A 25 Bps Rate Hike
Nomura expects the RBI to increase the repo rate by 25 basis points in December, taking it to 5.75 per cent. The brokerage’s assessment of the October MPC minutes focuses on inflation management, economic growth and the factors influencing the central bank’s policy decisions.
The October minutes highlighted the MPC’s deliberations on inflation risks and growth conditions. Nomura’s analysis also noted that the discussions did not focus on defending the rupee.
The assessment places inflation expectations and domestic economic conditions at the centre of the policy debate. The brokerage has also outlined the possibility of a prolonged pause after the December rate increase.
SBI Research Retains Its 50 Bps Projection
SBI Research has retained its forecast of a 50-basis-point repo rate hike in December, citing broadening inflationary pressures.
The research report outlines two possible approaches to monetary tightening. The first is a direct 50-basis-point increase in the repo rate, taking it from 5.50 per cent to 6 per cent.
The second option involves a 25-basis-point repo rate increase to 5.75 per cent, alongside an asymmetric widening of the liquidity adjustment facility corridor. The corridor determines the rates at which banks can access or deposit overnight funds with the RBI.
SBI Research’s forecast differs from Nomura’s assessment in the projected size of the December rate increase. While Nomura expects a 25-basis-point hike, SBI Research has maintained its call for a 50-basis-point increase.
December Policy Meeting In Focus
The RBI’s repo rate influences borrowing costs across the banking system. Changes in the policy rate can affect lending rates on loans linked to external benchmarks, including certain home loans and other floating-rate borrowings.
The impact of a rate change to borrowers depends on the loan’s benchmark, reset schedule and applicable terms. Banks also determine deposit rates based on their funding requirements and market conditions.
