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The Monetary Policy Committee (MPC) of Reserve Bank of India (RBI) is expected to hike the repo rate by another 35 basis points (bps) to 6.25 per cent in December 2022 and then hit the pause button, said Kotak in a report.
"We expect repo rate hike of 35 bps in the December policy to 6.25 per cent and then pause. Through the next couple of policies, the RBI will assess (1) any further upward surprise in rate hike trajectory from the Federal Reserve, (2) inflation trajectory which is expected to revert back to below 6 per cent, (3) impact of past monetary tightening on the growth-inflation dynamics, and (4) geopolitical risks," the report added.
"The uncertainty factor in markets may continue to exist as global scenario is still fluid. India policy moves incrementally would be data dependent toggling between relatively week global cues and more resilient domestic data," said Lakshmi Iyer, Kotak Assets chief.
The MPC had recently hike the repo rate by 50 bps to 5.90 per cent on Friday. This is the fourth rate hike seen in a row, after 40bps in May, 50 bps in June and 50 bps in August 2022.
As per the report, the headline consumer price index (CPI) is likely to be above the RBIs tolerance level of 6 percent through most parts of FY23. "Similar trend is visible globally, though we seem much better for now," said Lakshmi Iyer of Kotak Assets speaking to Moneycontrol.
Despite easing of global crude oil prices, food prices still remain sticky leaving limited head room for a major dip in CPI. The late recovery in sowing looks good for kharif crop output and the prospects for the rabi crop are equally good with comfortable buffer stocks.
Howevver, the risk of crop damage from excessive/unseasonal rains remains, leveraging the factor for food inflation and keep the repo rate higher next time too, said the report.
