SBI halves Dec rate hike forecast to 0.25 pc

Reuters Mumbai: State Bank of India 's Economic Research Department on Thursday revised the estimate for RBI's December rate hike to 0.25 per cent, down from the earlier projection of 0.50 per cent. In a note, they attributed the revision to improved external conditions, revival in foreign fund inflows and easing pressure on the rupee. Also Read: India's October retail inflation quickens to 6.09% to breach RBI's tolerance ceiling Interestingly, the note got published hours after headline inflation shooting the 6 per cent tolerance band set for the RBI, and analysts' expectations of more such prints being in offing. The SBI report said that there is a "50:50 probability" of the December hike being the final one in the current cycle, as it said that the terminal repo rate can be at 5.75 per cent as well. Live Events The RBI hiked the benchmark policy rate by 0.25 percentage point to 5.50 per cent in October, its first hike in nearly four years, while signalling that further rate hikes could follow amid rising inflation, a weak rupee and high crude oil prices . Also Read: India's growth gets further votes of confidence as Moody's raises FY27 forecast to 7% from 6.5% SBI Research expects inflation to remain above 6 per cent in November before moderating thereafter. It said trends in the first two weeks of November's price data from the Department of Consumer Affairs also indicate that inflation could remain elevated. The department had earlier outlined two possible policy options for the December monetary policy committee (MPC) meeting -- an aggressive 0.50 per cent or a 0.25 per cent increase accompanied by another 0.25 per cent adjustment through corridor widening. However, recent developments have shifted the balance of probabilities towards a 0.25 per cent, it said. SBI Research said the RBI's efforts to manage rupee volatility have yielded results, with the domestic currency moving below 94 against the US dollar, while liquidity pressures have also eased. The call money rate, which had risen to as high as 5.8 per cent in the last week of October, subsequently declined to below the marginal standing facility (MSF) rate of 5.44 per cent, it said. The improvement in the external environment and revival in capital flows are expected to further ease pressure on the rupee. Foreign institutional investors have infused around USD 7.65 billion into Indian markets since November 6, according to the report. The correction in artificial intelligence-related valuations globally could also improve India's relative market valuations and support foreign fund inflows, it said. On the commodity front, the prospect of de-escalation in the US-Iran conflict has improved the outlook for crude oil prices. Crude prices have declined 11 per cent since the US elections, to around USD 87 per barrel, the report said. SBI Research also expects US Treasury yields to soften following the Democrats' victory in the US mid-term elections, with the 10-year yield likely to move towards 4.75 per cent. For India, it expects the 10-year government bond yield to settle in the 6.75-7 per cent range, but with a clear downward bias. Importantly, expectations of three to four successive rate hikes, which had gained traction earlier, now appear to be an "outlier", the report said. Add as a Reliable and Trusted News Source Add Now! (You can now subscribe to our Economic Times WhatsApp channel ) Read More News on RBI rate hike SBI economists December monetary policy inflation forecast foreign fund inflows rupee volatility crude oil prices US Treasury yields India economic outlook State Bank of India (You can now subscribe to our Economic Times WhatsApp channel ) Read More News on RBI rate hike SBI economists December monetary policy inflation forecast foreign fund inflows rupee volatility crude oil prices US Treasury yields India economic outlook State Bank of India Prime Exclusives Investment Ideas Stock Report Plus ePaper Wealth Edition Business of Odd Things: The farm that needs no land, freshwater, or fertiliser KYC and KYB: Inside Pidilite, the company that turned Fevicol into a word for a strong bond – Part 1 of 3 Seoul halts trading, Nifty has its best week since 2021: Money leaving the AI trade – will it land in India? Junk bonds are cracking at the bottom. Will the noise get loud enough to make ‘junk bond’ a household term again? PNG connections rise half a million, but how many use piped gas for cooking? Some elections matter more than you know: No crop changed in the fields, yet sugar, coffee and soya got cheaper in a day 1 2 3 View all Stories