- 06 Apr 2023
- ICICIdirect Research
LAST RATE HIKE OF 25 BPS BY RBI DIVIDED CALL
News: Market participants are divided over the possible last 25 bps rate hike by MPC in today’s policy meeting outcome. While a large section expects a rate hike of 25 bps, a few participants expects status quo on benchmark rates
Views: The major driving factor for RBI's rate action has shifted from domestic inflation to the rate hike trajectory by US Federal Reserve. The Fed took into its stride the recent banking crises and hiked rate in its last policy meeting in March 2023, putting pressure on RBI as well. However in the last few days, weak jobs data has raised expectations of no further rate hike by the Fed. The same has led to a 20 bps decline in US bond yields (probability of no hike by the Fed in May 2023 policy meeting has increased to more than 50%). This may provide RBI comfort to halt its rate hike cycle. Pressure on RBI to hike rate to match Fed hike to manage the rupee has also reduced due to significantly narrowing of trade and current account deficit. In conclusion, a rate hike may be a non-event but status quo could be positive for both debt and equity markets
Impact: Neutral