Finance executives in organizations are warming up for another 40 basis points interest rate hike in the RBI’s June monetary policy meeting.
The central bank is meeting June 6-8 in the backdrop of inflationary pressures continuing to remain high. While the government’s latest fiscal measures including reduction in excise duty on fuel, and scrapping of import duty on crude soybean and sunflower oil are expected to ease domestic prices, CFOs noted that the energy prices continue to remain at elevated levels and, hence, the situation may warrant another rate hike of up to 40 basis points by the RBI, they said. The RBI had in its last off-cycle meeting on May 4 increased the repo rates by 40 basis points to 4.4%. The rate hike came after two years.
I believe RBI is firm in its stance of taking repo rates to pre-pandemic levels in line with the inflation trend. With a 40 bps hike already done ( in May 4 meeting) another 25-40 bps can be on the cards this time but a CRR hike is not expected. Further, the inflation forecast is definitely expected to be revised upwards, especially with Ukraine Russia conflict driving crude prices high and rising commodities prices. Although the government has taken initiatives to control the inflation by reducing taxes on fuel etc.Munish Gupta, Group CFO, Erisha Agritech Private Limited.
Ved Prakash Goel, CFO, of Dr. Lal Pathlabs expects a lesser increase of about 25 basis points but he does not foresee revision in the inflation forecast. “I believe a 25 bps increase is expected, but I am not sure if the inflation target will be revised this time. The government has already in the past fortnight taken some fiscal measures to curb inflation. So, if they take steps to reduce inflation and still forecast higher inflation, it will be contradicting in my view,” Dr. Lal Pathlabs CFO Ved Prakash Goel told ETCFO.
CEAT Tyres’ CFO Kumar Subbiah shared a contrasting viewpoint. He does not expect the RBI to increase the rates at all, arguing that the central bank only recently did it so, and hence it may not do it in another quick succession. “As RBI increased the rates recently, another increase is not expected next Wednesday. As crude and commodity prices are still running high, Inflation could forecast could go to 6%,” Kumar said.
The meeting of the minutes of the RBI’s unscheduled May meeting hinted at further rate hikes in the near term. Monetary Policy Committee member Jayanth R Varma, in fact, suggested an increase in rates by about 100 basis points soon.
Central banks across the world are looking at increasing rates to battle high inflation. Inflation in India hit an 8-year high in April at 7.8% driven by higher food and fuel prices in the backdrop of the Russia-Ukraine war. FY23 inflation has been pegged at 5.7% by the RBI at its scheduled meeting in April. The RBI is mandated under the law to keep inflation within the 2-6% band.