India’s retail inflation fell to 6.77% in October from 7.41% in September, slipping below the 7% mark for the first time in three months and only the second time since April’s eight-year high mark of 7.8%. Despite the cool-off, inflation remained above RBI’s threshold of 6% for the 10th consecutive month. According to economists, inflation is likely to gradually cool off to around 6% by February next year and further drop to around 5-5.5% in March. The Reserve Bank of India Monetary Policy Committee (MPC) is expected to continue with rate hikes in Dec meet before pausing rate increases in this cycle. The terminal repo rate is seen at up to 6.75%. RBI MPC is expected to go for a 35-50 bps rate hike in its upcoming meeting.
50 bps rate hike likely in Dec MPC meet: Nikhil Gupta, Chief Economist, Motilal Oswal Financial Services group
India’s headline inflation fell to three-month low, in-line with market consensus but lower than our forecast of 7%. As expected, lower inflation was led by food items. Food inflation inched lower to 7% on-year, while core inflation remained sticky at 6.2. Overall, an inflation of 6.8% is nothing to cheer about. If Q2FY23, real GDP growth comes in stronger-than-expected (which is what we expect), the RBI may go for another 50 bps rate hike next month, though 35 bps is still the consensus. In any case, we continue to believe that the terminal repo rate could be 6.5-6.75% by the end of FY23, followed by a long pause in FY24.
RBI may halt rate hike cycle, with a long pause: Nish Bhatt, Founder & CEO, Millwood Kane International
“After two months of above 7% inflation, the CPI is finally below the 7% mark but still stays above the RBI’s mandate of 6%. The core inflation too remains sticky at 6%. The WPI data showed a fall below the 10% mark. This is in line with the central bank guidance for the CPI data.The effects of lower crude and food prices have started reflecting in vegetable and food price inflation. This will be the last inflation data point before the RBI meets next month to decide on its monetary policy. This will likely have some positive impact on the event. Inflation cooling off broadly indicates the RBI halting its rate hike cycle, with a long pause.”
Inflation to inch closer to 5% in March 2023: Suvodeep Rakshit, Senior economist at Kotak Institutional Equities
“CPI inflation in October reduced by bps to 65% from the September print. Most of it was due to favorable base effects even as sequentially CPI increased by 0.8%. Most of the month-on-month increase was due to food, particularly vegetables and cereals. This could be a bit more persistent source of inflation which will lead to a slow moderation. We expect CPI inflation to glide down gradually to around 6% by February 2023 and closer to 5% in March 2023. Given the moderation in the domestic inflation trajectory, some incipient moderation in US inflation, and possibility of a global slowdown, we expect the RBI to hike repo rate by 35 bps to 6.25% in the December policy followed by an extended pause to watch for the impact of past rate hikes, liquidity tightening, and global macro scenario.”
Another 50-60 bps rate hike on cards in this cycle: Sujan Hajra, Chief Economist, Anand Rathi Share and Stock Brokers
“Despite several upside risks and the unfavourable base for food and fuel, retail inflation seems to have passed the peak. A rapid cooling off is unlikely given the base and current momentum. With duty and tax cuts on petroleum products and the ban on some food exports, drivers of inflation seem to have shifted from global to domestic factors. Inflation remains well outside the RBI’s comfort zone and core inflation remains sticky near 6%. With repo rate at 5.9% and SDF at 5.65%, we expect the RBI to be highly data driven in future rate decisions. A pause or a small hike looks likely in the next policy. Yet, another 50-60 bps rate hike in this cycle remains oncards with the terminal repo rate close to 6.5%.”
RBI’s last rate hike of 25-35 bps likely in February: Yes Bank
“October CPI inflation print is comforting from a Headline perspective. However, internals continue to hint at prevailing price pressures in the economy. Although mandi food prices indicate sharp contraction in November so far, we expect the core price pressures to offset the decline somewhat. That said, favorable base would continue to support the November print at the margin.”
“From here on, the point of discussion would revolve around the pace of rate increase from the RBI over the next few meetings, especially as US CPI is seen to have peaked. While this opens the possibility of a < 50bps increase at the December policy, we tilt in favor of a 50 bps increase by the RBI.” Yes Bank estimates a Headline CPI print of 5.5% for March 2023 and Q1FY24 average of 4.8-5.0%. On the back of this, we expect the last increase to be in February 2023 by 25-35bps.