RBI may raise policy rates by 75 bps cumulatively in next 2 reviews: SBI Research

9

New Delhi, May 13 | SBI Research expects the central bank, Reserve Bank of India (RBI), to raise key policy rates both in its June and August policy meeting by a cumulative 75 basis points.

Beyond August, rate actions might be more balanced and judicious and the terminal repo rate is expected to be at 5.15-5.25 per cent by FY23, it said.

This is tantamount to saying that the RBI should not increase the repo rate by more than 1.25 per cent for an incremental negative contribution to kick in.

Retail inflation surged to 7.79 per cent on yearly basis in April 2022, as compared to 6.95 per cent in March 2022, mainly on account of food price inflation.

Inflation prints are now likely to stay higher than 7 per cent till September, the SBI Research said in a report.

“Beyond September, inflation prints could hover between 6.5-7.0 per cent. Our FY23 inflation forecast is at 6.5 per cent, taking into account the possibility of an extended food price shock,” it said.

The Russia-Ukraine conflict has significantly impacted the trajectory of inflation.

The latest April inflation print shows wheat, protein items (chicken in particular), milk, lemon, cooked meal, chillies, refined oil, potato, chillies, kerosene, firewood, gold and LPG are contributing to overall inflation in a substantive manner.

Interestingly, inflation in protein items like chicken, mustard oil etc, softened in April.

However this might be an aberration, given that April was the month of Navratri and other religious festivals, it added.

Surprisingly, the contribution of petrol and diesel in overall inflation has been declining steadily since October 2021, while there is a steady increase in the weighted contribution of kerosene and firewood in headline inflation.

The significant increase in weighted contribution of kerosene perhaps reflects the impact of high fuel costs in rural areas. This does not augur well for rural demand.

“The weighted contribution of LPG has also increased, reversing a downward trend. This however, may be attributed to commercial usage of LPG.”

Besides, the report said the RBI may increase the CRR rate by another 100 bps, after raising it by 50 basis points recently.

The RBI can give back to the market at least 3/4th of the Rs 2.6 lakh crore absorbed through the CRR hike, or Rs 1.95 lakh crore, in some form to address duration supply.

It would lower the market borrowing to around Rs 12.36 lakh crore for FY23 compared to the Budget estimate of Rs 14.3 lakh crore, the report added.

Further, SBI research added that the fall of the rupee to new lows, with spiking volatility breaching the psychological levels of 77 augurs the uneasy situation, reflective of the turbulence in broader markets globally, and the limited choices before the central bank in managing the exchange rate, even with seemingly comfortable levels of forex reserves close to $600 billion.

“We don’t expect the rupee to breach the levels of 80 and instead show an appreciative bias over time,” it said.

Source: IANS

Next Story

Share Market Closing Bell: Market ends the week in green, Sensex surges 1,534 pts and Nifty sinks below 15,850

Share Market Closing Bell: Market ends the week in green, Sensex surges 1,534 pts and Nifty sinks below 15,850

The NIFTY 50 recouped the previous day’s losses and ended at 2.89 percent higher on strong global cues after China cut key lending rates. Nifty continued its upside rally throughout the day as it ended at 16266.15 levels. Bank nifty closed the session at 34276.40 level with a gain of 960 points. VIX closed at 23.10 down by 5.94%.

48 stocks out of NIFTY 50 closed in green which suggest broad based buying. All the sectoral indices are trading higher with metal, pharma, PSU bank and realty indices up 2-3 percent each. Stocks like DRREDDY, JSWSTEEL, NESTLEIND, TATAMOTORS & TATASTEEL were the top gainers, While SHREECEM & UPL were only two losers. The Nifty has formed Open Bullish Marabozu on a daily time frame which indicates upside momentum for an upcoming session.

Moreover, Nifty has been trading in a range of 15750-16410 levels throughout the week, crossing either side can direct further direction. In addition, Nifty has given a closing above 9-Day Moving Average which indicates a bounceback from lower levels can be seen.

However, the momentum indicators MACD & Stochastic were trading witha positive crossover & reversed from oversold zone on an hourly chart which suggest a northward journey in Nifty. The Nifty may find Strong support around16000 levels, while on the upside 16410 may act as an immediate hurdle. On the other hand, Bank nifty has support at 33200 levels while resistance at 34800levels.

Palak Kothari
Research Associate
Choice Broking

Source: Choice India

LEAVE A REPLY

Please enter your comment!
Please enter your name here