Moneycontrol Pro Panorama | How many more rate hikes? The guessing game is on

Representative image

Dear Reader,

The Panorama newsletter is sent to Moneycontrol Pro subscribers on market days. It offers easy access to stories published on Moneycontrol Pro and gives a little extra by setting out a context or an event or trend that investors should keep track of.

Today’s edition of Moneycontrol Pro has a bouquet of articles on the Monetary Policy Committee’s aggressive 50 basis-point rate hike that underscores the Reserve Bank of India’s efforts to tame rising inflation.

The central bank’s focus to withdraw its accommodative stance and increase FY2023 inflation estimates by 100 basis points to 6.7 per cent raises several questions on what lies beyond. How many more rate hikes lie ahead? How much is sufficient to cool off inflation? Will this affect consumption? Will higher borrowing cost slow capital expenditure?

RBI Governor Shaktikanta Das said 75 per cent of increase in India’s inflation can be attributed to food and energy prices -- caused largely by factors outside monetary control. In his column, banking and financial markets expert Prof. Ananth Narayan points out how speedy rise in rates and withdrawal of banking liquidity might do little to alleviate inflation, while impacting investment and job creation. But what it could do is increase real rates for savers, who had shifted to riskier assets.

While the spotlight is on rising rates, Manas Chakravarty writes here that the real repo rate (adjusted for retail inflation) is at around the same level as it was a year ago! Will the rate hike actually help rein in inflation, as expected?

Then, there are concerns over economic growth arising from the higher borrowing costs that would add to prevailing high commodity prices. There’s no letting up in global crude prices – it’s at a 13-week high today, although commodity prices may soften slightly, given the easing of supply and logistics constraints, which are a fallout of the ongoing Russia-Ukraine war. Read this piece, where Gaurav Kapur, chief economist, IndusInd Bank, points out that given the marginal growth in real terms seen in the last two years, any further frontloaded and aggressive monetary tightening may be unwarranted.

However, RBI has retained its growth forecast at 7.2 per cent for the current year. Factors such as a normal monsoon, healthy corporate and bank balance sheets and improved capacity utilisation in March quarter, which is the highest since Q4FY2019, lend confidence.

Indian financial markets are wobbly, perhaps due to uncertainty on what the outcome of rate hikes would be on growth and inflation in the coming quarters. Besides, a lot of the developments on home turf are influenced by global factors. Many economists believe the MPC is likely to raise rates by another 100 bps over the next four meetings for the current fiscal year, which will take the repo rate to 5.9 per cent by February 2023.

On another note, the Indian start-up scene is also on edge as we have pointed out in our earlier columns. Today’s piece has a contrarian take for entrepreneurs - starting up in a downturn could make sense.

Investing insights from our research team

Action-packed week ahead as central banks aim at soft landing

CCL Products: Time for a sip?

Sun TV: Multiple headwinds negate cheap valuation

What else are we reading?
RBI measures will have to be sizeable to keep yields in check

RBI consumer survey | Buyers look to cut down spending on non-essentials

FX Learn: Get a fix on directional trading using options

Max Life rebounds in May, but growth winds are firmly behind SBI Life

Spac boom dies as wary investors retreat (republished from the FT)

Technical Picks: Castor seeds, TV18 Broadcast, USD-INR, Vedanta, GE Shipping and DLF (These are published every trading day before markets open and can be read on the app)

Vatsala Kamat
Moneycontrol Pro