India rates: Gradual hiking path – Standard Chartered
Standard Chartered Global Research argues India’s Monetary Policy Committee will raise the repo rate by 25bps to 5.50% in October and deliver another 25bps hike in December. The authors highlight rising domestic inflation, robust GDP growth and hawkish MPC minutes as justification.
Standard Chartered Global Research predicts that India's Monetary Policy Committee (MPC) will raise the repo rate by 25 basis points to 5.50% in October and then increase it again by another 25 basis points in December. The reasoning behind this forecast is based on rising domestic inflation, robust GDP growth, and hawkish minutes from the MPC.
The researchers anticipate a unanimous vote at the MPC's October announcement, followed by the subsequent increase in December. However, they believe there is a possibility of an additional 25-50 basis point hike in the repo rate if inflationary pressures persist beyond expectations.
According to the latest CPI inflation data, India's inflation is expected to stand at 5.7% year-on-year in September and could rise above 6% by the time the MPC meets in December. Since the inflation rate is mandated to stay within a 2-6% range, with a medium-term target of 4%, waiting until inflation surpasses 6% to make the first hike could be perceived as the MPC lagging behind the curve.
Moreover, postponing the hike in October would be challenging to justify given the hawkish August minutes and the emphasis by the RBI Governor on normalizing the repo rate as average inflation approaches 5% in FY27, as opposed to 2.5% in FY26.
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