RBI Preview: Forecasts from eight major banks, CPI forecast revision and guidance watched

The Reserve Bank of India’s first monetary policy statement for FY23 (fiscal year running from April to March) will be released on Friday, April 8 after a two-day meeting. Here are the expectations as forecast by the economists and researchers of eight major banks regarding the upcoming central bank's decision. 

This is the first monetary policy announcement by the RBI after Russia’s invasion of Ukraine. RBI is set to keep its policy stance and key rates unchanged even as surging oil prices are set to push up inflation and dent economic recovery. 

ANZ 

“We expect the policy repo rate to be unchanged but the RBI will recalibrate its economic outlook to take into account high oil prices, especially by revising up its inflation forecast for FY23. This, however, is unlikely to coax an immediate retreat from accommodation as growth remains in need of policy support. We expect headline inflation to remain elevated, averaging 5.2% for FY23. In our baseline forecasts, we envisage the first policy rate hike of 25bps in August. Part of the RBI’s broader economic policy will also entail keeping the rupee stable amid outflow pressures and a larger current account deficit. Not only will it anchor investors’ return expectations amid volatile markets, it will help limit imported inflation. This will help extend the runway for the RBI to sustain policy accommodation.”

Standard Chartered

“We expect RBI to keep both the repo rate and the reverse repo rate unchanged at 4% and 3.35%, respectively. Given that the RBI governor recently highlighted the crucial role of communication as a monetary policy tool, we will closely watch for any cues on possible policy reversal. We do not expect a change in stance from accommodative to neutral, although the MPC is likely to focus on inflation and signal the possibility of a change in case the current environment prevails, even if the tone of the statement remains balanced. In this regard, we expect a revision to the CPI forecast for FY23 (starts April 2022) from 4.5% (our forecast: 5.4%), given the sharp rise in inflation risks since February amid the spike in global commodity prices. We maintain our view of repo rate hikes from August and reverse repo rate increases from June. We see a risk of the repo rate hike being advanced to June from August and the possibility of a higher terminal rate, especially if oil prices stay above $100/bbl, thereby raising FY23 inflation closer to 6% (upper end of the target range).”

TDS

“We expect no change in the policy repo rate (4.0%). However, there is also a non-negligible risk that RBI shifts to a neutral stance from accommodative. We see a higher risk that the RBI raises its reverse repo rate at this meeting than consensus expectations and look for a 25bp hike in this rate. INR may benefit from a surprise reverse repo rate hike. However, we expect gains in the currency to be limited. We think RBI will want to avoid a much sharper INR rebound, to help maintain exports competitiveness, though the Bank will also be at hand to limit rapid INR declines given its considerable FX reserves war chest.”

SocGen

“We believe that RBI would substantially revise up its inflation forecast during its next meeting in April from a rather modest 4.5% announced in the previous meeting. We also believe that the central bank would likely use the meeting to announce a shift in focus of monetary policy from predominantly supporting growth and reinforce its role as inflation targeting central bank. The RBI, while likely keeping the policy unchanged at 4.0% would announce a change in the monetary policy stance from accommodative to neutral leaving the door open for a rate hike during the June meeting.”

BBH

“RBI is expected to keep the repo rate steady at 4.0%. At the last policy meeting on February 10, the central bank delivered a dovish hold. Governor Das note ‘Private consumption, the mainstay of domestic demand, continues to trail its pre-pandemic level. The persistent increase in international commodity prices, surge in volatility of global financial markets and global supply bottlenecks can exacerbate risks to the outlook.’ Next policy meeting is May 19. While another dovish hold seems likely, the bank should start inching towards hiking rates.  Bloomberg consensus sees Q3 liftoff and so the RBI’s dovish stance will eventually be tested.” 

HSBC

“The RBI is likely to stand pat on its policy rates while maintaining an accommodative tone given the current high level of macro uncertainty. The RBI may lower its projection for GDP growth and raise the CPI inflation forecast amid sharp rises in global commodity prices. That said, the central bank could view the current inflationary pressures as a supply-side phenomenon and prefer to wait for clear evidence of core price pressures given its concerns about weak demand in the economy.”

Credit Suisse

“We expect no change in policy rates following RBI Governor Das’ recent speech where he noted domestic growth remains a priority. With regard to the MPC’s vote on policy rates, we expect another unanimous vote for no change. For the RBI’s monetary stance (which requires a separate vote by the MPC), we think members will continue to vote 5-1 to maintain the RBI’s current stance of ‘accommodative.’ Although additional dissents in support of a ‘neutral’ stance are possible at the upcoming meeting, on balance we think that the same 5 person majority of voters will continue emphasizing growth support, thus keeping the same 5-1 vote from February.” 

UOB

“The looming inflation risks in FY2022/23 will be a persuasive factor for RBI to finally jump on the hike wagon and introduce its first rate hike in 2Q22 to 4.25%. We also pencil in further hikes of 25 bps for both 3Q22 and 4Q22 to finally bring the repo rate to 4.75% at the end of 2022.”