There were no many surprises expected from the June round of the Monetary Policy Committee (MPC) meeting which began today, June 6.
It is certain that the tariff determination panel will increase the level of the main loan, or the level of repo, in the round of this meeting and the betting market at an increase in the 40 -basis point (BPS). One basis of points is a hundredth of the percentage points.
Governor of the Reserve Bank of India (RBI) Shaktikanta Das said at the time of the May 4 interest rate increase, and also in his interview to CNBC TV 18, another tariff increase was certain. The question is how much price can go up?
Interestingly, one of the MPC members – Jayanth Varma – has left clear instructions about this when he said the increase in interest rates of 100 bps is likely to happen soon. Already, the bank has begun to pass a higher tariff traffic on loan and deposit products.
Many banks have started the hiking level in a small quantum but in the end the entire quantum of interest rate increases from MPC is likely to be forwarded to the final consumers this time. Usually, interest rate transmissions on loan interest rates occur before the deposit interest rate is adjusted.
While sharper interest rates will injure the borrower because they need to pay higher for their monthly loan installments, interest rate increases are good news for savers because they get higher interest rates in their savings.
Obviously, inflation will occupy the peak of the agenda in this MPC meeting round because high prices hurt ordinary people on the land and MPC cannot ignore this concern for a long time.
Attitude will definitely change. Some economists expect MPC to change tariff attitudes to become ‘neutral’ in June and follow up with an increase in interest rates in the main policy level (Repo) where the central bank lent short -term funds to the bank. The increase in the 25 -base point level in repo coupled with changes in tariff attitudes now looks very possible, Barclays said in a note.
On April 12, official data showed retail inflation jumped to the highest 17 months 6.95 percent in March from 6.07 percent in February which was driven by high food prices. Consumer price index inflation (CPI) for March is far above the estimated consensus. In accordance with Reuters’ opinion, economists hope that CPI inflation will increase to 6.35 percent.
The latest inflation print confirms the assessment of the Monetary Policy Committee (MPC) that high -continuous inflation is a greater concern for advanced policy makers. MPC has a mandate to maintain inflation in the 2-6 percent bands and three-quarter-quarter violations will require the panel to explain to parliament why failing to maintain inflation in the band.
In the last policy review, inflation projection was raised to 5.7 percent for FY23 from 4.5 percent, a clear recognition that inflation fears cannot be ignored by the tariff determination panel to find growth.
It is impossible that the central bank will further increase the cash reserve ratio (CRR) again after the 50 bps increase in the last round. That’s because the excess liquidity in the banking system has declined sharply after the last round of action with the liquidity of the clean excess parked under the LAF window is now around RS 3 Lakh Crore. The central bank may not want to tighten further liquidity at this time.
The increase in level this time is not possible to surprise the market further because MPC has hinted at the future level pathway. The market has been calculated in the tariff to return to the pre-Pandemic level taking the guidance of the Governor of Shacticanta Das.