The November inflation print of 5.88 per cent provides impetus to end the rate hike cycle, economists at the country’s largest lender SBI said on Monday. This came hours after official data showed that consumer price index (CPI) based inflation cooled to 5.88 per cent in November, the first time that it has come within the RBI’s target band this year.
Terming the RBI — which has hiked rates by a cumulative 2.25 per cent since May to fight inflation — as “hawkish”, the economists said, “Indian headline CPI for the month of November is providing impetus to end of rate hike cycles in India.”.As per their note, the hawkish monetary policy may be able to get domestic inflation under control
They added that as long as US inflation does not come under control, the Federal Reserve may have to increase rates, giving incentives for capital outflows from emerging markets resulting in exchange rate volatility and currency depreciation.
The economists, however, feel that headline inflation will rise up again to be in the 6.5-6.7 per cent range in December 2022-January 2023, and will decline materially to 5 per cent by March 2023.”We now maintain a minimal
probability of a February terminal 25 bps rate hike. However, that will also be accompanied with a change in stance to neutral, if it was to happen so,” the note from SBI economists said.
The RBI will be in a vantage position of taking a considerate view in February policy, given that the rate setting panel will meet after the announcement of the Union Budget — the last full document for the present government.
and the US Fed’s FOMC meeting, it said. Pointing to the consumer non-durables segment, the note said 57 per cent of the total decline for November was driven by this aspect, and called it as “worrisome” because it reflects slackening pace of rural demand.