Mumbai: Yes Bank and State Bank of India are among the handful of market participants that have lowered their expectations of a policy-rate increase in the foreseeable future after the Reserve Bank of India on Wednesday sounded relatively dovish on inflation.
Yet, most others have more or less stood by their earlier forecasts.
Yes Bank, which had earlier expected hikes in October or December, now believes the Reserve Bank of India (RBI) will defer raising rates for as long as possible.
SBI, meanwhile, said the latest policy pushes any rate hikes beyond FY27. MUFG Bank, which had earlier pencilled in a hike in October, has now pushed back its rate-hike forecast to December and expects a 50-basis-point hike in FY27. The bank had earlier forecast an increase of half a percentage point. "We still see policy rates moving higher from here with domestic growth remaining quite robust, credit growth accelerating and as the lagged impact from earlier oil price increases visible," Michael Wan of MUFG Bank said in a note.
Read more: Weekly Expiry: Sensex mirrors Nifty's swings, but with milder spurts
"We see RBI hiking rates by 50bps to 5.75% but push out the timing of the first hike to December from our previous expectation of an October move," he said. One basis point is a hundredth of a percentage point.
Further away Banks still expect rates to rise, but some lenders don’t see it coming this year
HSBC and Kotak Mahindra Bank continue to expect a cumulative 50-basis-point hike, while Bank of Baroda and HDFC Bank still see at least one rate increase later this fiscal year to prevent real interest rates from turning negative.
Bank of Baroda said it continues to expect a rate hike later this fiscal year, arguing that if the RBI keeps rates unchanged and inflation rises above 5.2% in the later quarters, the real policy rate, or the difference between the repo rate and inflation, would turn negative.
The RBI has projected Q4FY27 inflation at 5.5% in its August policy, up from 5.4% in its earlier projection.
For the full FY27, The Reserve Bank of India has projected inflation at 5%, down from 5.1% previously. In Q1FY28, inflation is expected at 5.3%. Inflation in India is highly sensitive to crude oil prices, given that the country is a net importer of the commodity.
The RBI has assumed an average crude oil price of $95 per barrel for FY27 in its inflation projections.
"With inflation averaging at 5.4% over the next 4 quarters, a 5.25% repo rate looks low. However, the inflation trajectory is underpinned largely by oil prices and if oil prices fall sharply, inflation risks will be tilted materially lower," said Indranil Pan, chief economist, Yes Bank.
