Between now and December, another 25 bps hike in rates possible: Keki Mistry, HDFC
“If US raises rates faster and oil prices keep going higher, another hike can be expected.”
The RBI has gone ahead and hiked repo rates by 25 bps but has kept it stance neutral. The commentary from the RBI was also that it is giving itself elbow room to act on rates either which way. Is this confusing or is it being more proactive and reacting through situation?
In my view, the RBI Policy is almost exactly in line with what we were expecting. One, we thought that interest rates would be hiked by 25 bps. Two, we thought that the growth expectations would remain strong; and three, the inflation outlook would look a little hazy going forward because of a variety of factors like commodity prices, HRA hike by the central government employees and so on so forth.
I do not think there are any surprises in the policy. My expectation was that in the course of the year, we would see either a 25 or a 50 bps hike in rates or if it was a premium, out of 50, 25 bps has already happened and therefore one should could perhaps expect that in the remaining part of the year till December, another 25 bps hikes in rates is possible. But it is dependent on so many factors today which are not in our control and where we do not have an idea.
It depends on oil prices, it depends on how commodity prices pan out, it depends on how US interest rates play out, it depends on so many other factors.
You are saying that the next policy rate hike may happen between now to December. What is going to determine the monetary policy trajectory from now to August? Is it going to be crude prices which are up 12% since the last policy in April but what else is going to determine what the policy action could be?
It depends almost entirely on how the inflationary pressures pan out and what RBI’s expectation is on the inflationary front. Growth numbers look good partly because of the expected resolution of some of the stressed loans in the system because of the insolvency law. That should help the system and facilitate growth. If US raises rates faster than expected and oil prices keep going higher. I am giving you the worst options with oil prices going higher and US raising rates. Then, one can certainly expect RBI to look at raising rates.
The RBI has hiked rates. It has also hiked inflation projections for this financial year. But it keeps its stance neutral. So, obviously it wants to give itself elbow room. Where is this optimism coming from? Does it believe there could be a new formula in the works as far as oil prices are concerned and not all of it will be passed on to the consumers and that will anchor inflationary expectations?
Oil prices have gone up a lot and so it is difficult to say. Also, growth expectations of the economy should be good but I think these are some of the factors that are taken into account.
How soon do we expect banks to pass on this hike to the consumers?
Most banks have already hiked their lending rates by 10% to 15% bps. So, a large part of the hike has already happened. Going forward, banks will be a little watchful seeing how interest rates pan out and then take a call on how much of the hike has already been captured in the IT domain.