The Monetary Policy Committee (MPC) is expected to maintain the repo rate at 6 per cent in the ensuing policy review meeting next week, however, there is also a probability of a pre-emptive hike by 25 bps, says a UBS report.
According to the global financial services major, the June policy review meeting is likely to be a close call, while the tone of the policy statement is expected to remain hawkish.
"In its monetary policy review, scheduled for 4-6 June, we expect the MPC to maintain the repo rate at 6 per cent. However, we assign a 40 per cent probability that the MPC will pre-emptively hike rates by 25 bps in the meeting," Tanvee Gupta Jain, Economist, UBS Investment Bank said in a research note.
In its first bi-monthly monetary policy for 2018-19, RBI left repo rate unchanged at 6 per cent. The MPC maintained status quo for the fourth consecutive time since August last year.
The minutes of the April meeting had suggested that two of the six MPC members have already decided to vote in favour of a 25 bps hike.
According to the global brokerage, the MPC will hike rates by 50 bps this fiscal from its August meeting. However, if oil price touch USD 100/bbl or the rupee depreciates to Rs 70/USD, the rate hike cycle might start sooner and would be more aggressive (at least 75 bps from now).
The report said MPC will keep a close watch on evolving inflation dynamics and will monitor announcements of hikes in minimum support prices for the kharif crops and changes in procurement policy, global oil prices, the out-turn of monsoon, risk of fiscal slippages in the run-up to the 2019 general elections among others.
Moreover, acceleration in currency in circulation is also adding to the tightening pressure, the report said.
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