Market participants and economists now expect a 25-bps increase in the December and February reviews. A further 25-bps increase in April isn’t ruled out if crude oil prices remain persistently above $100. One basis point is a hundredth of a percentage point.
“After the minutes were released, we think the probability of a consecutive hike in December has increased. Our terminal rate forecast is now at 6% for this hiking cycle and we expect the cycle to be rather shallow,” Barclays said in a note.
Also Read: Extent of rate hike cycle to depend on growth-inflation outlook: RBI Governor
The Reserve Bank of India (RBI) had projected crude oil prices at $95 per barrel for H2FY27, from its previous expectations of $85 per barrel, while actual prices have increased to $105-110 levels. An increase in crude oil prices stokes inflation concerns, as India is a net importer of the commodity.
To be sure, due to the base effect, the increase in prices might seem softer over the next fiscal.
Also Read: Inflation remains top of mind, MPC minutes showSome expect crude oil prices to cool, while others anticipate softer retail inflation in FY28 and relatively contained second-round price effects, which could limit the need for further tightening.
“We expect core CPI at 4.2%, lower than the 4.4% of the monetary policy committee, which implies that second-round price effects or demand-side price pressures are still relatively contained,” according to Barclays.
State Bank of India said that peak inflation in November would be below 6.5% and it expects a “50-bps rate hike in December either through a plain vanilla 50-bps repo rate hike or an exotic 50-bps rate hike with a 25-bps repo rate and a 25-bps asymmetric widening of LAF corridor.”