The Reserve Bank is expected to go for another rate hike of 0.40 percent at the scheduled review of the monetary policy next week, a foreign brokerage said on June 4.
The central bank's rate-setting panel will follow it up with a 0.35 percent hike in rates at the next review in August, or make it into a 0.50 percent hike next week and a 0.25 percent increase in August, to make the total quantum of rate hikes at 0.75 percent, the report by Bofa Securities said.
On May 4, the Reserve Bank of India (RBI) hiked rates by 0.40 percent, and Governor Shaktikanta Das has already called a rate hike at the forthcoming review as a "no brainer" given the pressure to maintain its core mandate of inflation in the targeted band of under 6 percent.
The report from the brokerage said it sees the headline inflation for May to come at 7.1 percent due to a sharp increase in tomato prices.
While mentioning about measures like the excise duty cuts on fuel products, duty-free imports of crude soyabean and sunflower oil and cut in ATF prices, the report said such moves will help avoid a runaway increase in inflation.
However, it said the consumer price inflation will average 6.8 percent—much above the RBI's tolerance limit of 6 percent—in FY23.
The central bank will itself do an upward revision of its estimate to 6.5 percent in FY23 from the present 5.7 percent, it added.
"... we expect the RBI MPC to hike policy repo rate by 0.40 percent in June and 0.35 percent in August. We must highlight that for the sake standardised steps, the chances of delivering a 0.50+0.25 percent hike combination is quite high too," the report said.
The key thing is that RBI MPC exits ultra-accommodation by August and takes policy repo rate to the pre-pandemic level of 5.15 percent, it said, adding that if inflation continues to be high after that, the RBI will take the repo rate to 5.65 percent by end of FY23.
The brokerage said it also sees another 0.50 percent hike in the Cash Reserve Ratio (CRR) or the ratio of demand deposits parked by lenders with the RBI without any return, as the central bank moves to normalise liquidity conditions by withdrawing excess stock.
It can be noted that the RBI had hiked the CRR by 0.50 percent to 4 percent on May 4 to suck out Rs 87,000 crore of liquidity from the system.
On the growth front, the brokerage retained its estimate of a 7.4 percent expansion in the real GDP for FY23, and added that the RBI will also maintain its 7.2 percent estimate.
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