What India Inc and economists want RBI to do at upcoming policy meeting

RBI

by 5paisa Research Team Last Updated: Dec 13, 2022 - 09:13 pm 8.7k Views
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India Inc wants the Reserve Bank of India (RBI) to slow down on any further interest rate hikes, citing weak domestic growth prospects, as fears of a global slowdown loom large. 

"Given the headwinds to domestic growth mainly emanating from the global uncertainties, the RBI should consider moderating the pace of its monetary tightening from the earlier 50 basis points," the Confederation of Indian Industry (CII), the biggest lobby group of Indian companies, has said. 

The plea is significant as it comes ahead of a planned bi-monthly monetary policy meeting of the RBI. The meeting of the Monetary Policy Committee (MPC) is scheduled for December 5-7. At the end of this meeting, the RBI could take a call on a further rate hike. 

What is the CII’s rationale behind its demand, beyond global cues?

According to the CII, domestic demand is recovering well as mirrored by the performance of a host of high-frequency indicators. However, the prevailing global 'polycrisis' is likely to impinge on India's growth prospects too.

The CII says while it is cognizant of the RBI's interest rate hikes of 190 basis points so far in this fiscal have been warranted to tame inflationary pressures, the corporate sector has now started to feel its adverse impact. 

But what do economists want the RBI to do?

Economists have urged the central bank to hike interest rates by 20-25 basis points in December, according to a report by the Business Standard. 

According to another Business Standard monetary policy poll, economists see a further 35 basis points increase in interest rates and then a halt. 

Why may a further hike be necessary?

A rate hike is necessary in a bid to tame inflation, which is still way above the RBI’s upper limit of 6%. Economists say that while inflation may have peaked for now, more pain may still be in the offing.

India’s inflation data reported on November 14 showed retail inflation easing to 6.8 per cent in October from 7.4 per cent in September. However, it is still higher than the allowable upper limit of 6 per cent, accommodating a margin of 2 per cent above the targeted rate of 4 per cent.

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