Last Updated : Jun 07, 2018 12:30 PM IST | Source:

Global brokerages see another rate hike in 2018; ICICI Bank, IndusInd Bank among top buy ideas

The RBI's Monetary Policy Committee hiked the key rate for the first time in over four years by 0.25 percent to curb inflationary pressures from high oil prices.

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Most of the global brokerage firms such as CLSA, Citigroup, Macquarie, Nomura, HSBC, and Morgan Stanley see another rate hike in the year 2018 up to 50 bps. The Reserve Bank of India’s boost to housing sector makes ICICI Bank, IndusInd Bank, HDFC, and ICICI Pru preferred buys.

The RBI's Monetary Policy Committee hiked the key rate for the first time in over four years by 0.25 percent to curb inflationary pressures from high oil prices.

All its members voting for the increase, the 6-member Monetary Policy Committee (MPC) surprised markets by raising the repo rate, at which it lends to other banks, to 6.25 percent but kept its policy stance as "neutral" which is a positive sign.

We have collated views from different global brokerage firms on RBI outcome:


CLSA says that it is a manageable hike after 4.5 years. The global investment bank sees 50bps deposit rate hikes for banks in 2018.

The affordable housing segment is likely to see growth due to ticket size increase. Top picks include names like ICICI Bank, IndusInd Bank, HDFC, and ICICI Pru Life.

In order to bring greater convergence of the Priority Sector Lending (PSL), it has been decided to revise the housing loan limits for PSL eligibility from existing Rs 28 lakh to Rs 35 lakh in metropolitan centers, and from existing Rs 20 lakh to Rs 25 lakh in other centers. A circular in this regard shall be issued by June 30, 2018, said RBI in a statement.


The MPC acts in time and in unison this time as all the six-member unanimously voted for increasing repo rate to 6.25 percent from 6 percent in its second bi-monthly policy for the year

An early move is likely to improve RBI's inflation-fighting credibility; however, there could be upside risks to H1 CPI forecast and downside surprises to H2.

At this point, October looks more likely for another rate hike. MPC's stance may be 'neutral' but the statement reads a tad hawkish, said the report.


RBI is keeping the policy stance ‘neutral’ was something which not expected by market participants. MPC will remain data dependent and respond to evolving inflation trajectory.

It looks like more rate hikes cannot be ruled out given the headwinds to macro stability. The global investment bank expects another rate hike of 25 bps, but the timing would depend on data.

Macquarie expects a continued recovery in growth to 7.2 percent in FY19. On the macroeconomic front, the global investment bank expects the current account deficit to widen to 2.5 percent of GDP.

It expects inflation to average close to 4.6 percent in FY19, and may see a hike in August if incoming data deteriorates, said the note.


Nomura expects a 25 bps hike in August, followed by a status quo stance. Global factors are likely to drive future moves.

Given domestic inflationary pressures and external risks, the pre-emptive move is the right way of going ahead. A ‘neutral' stance indicates that RBI is not embarking on a tightening cycle.

Morgan Stanley:

Morgan Stanley had previously expected the start of the rate hike cycle in 4Q18. However, reflecting this earlier than expected move, we now expect the rate hikes to be front-loaded.

Specifically, we expect rate hikes in the August and October meetings but that the total quantum of rate hikes will remain at 75bps for this cycle. Our framework for assessing further actions by the RBI remains centered on the inflation outlook.
First Published on Jun 7, 2018 12:30 pm
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