The Reserve Bank of India (RBI) may decide to raise the repo rate again in December. However, this time, interest rates are likely to rise by 25 bps instead of the sharper 50 basis points (bps), according to a recent SBI Research report. If so, banks may change loan interest rates, which could affect your EMI. The report added that there is a 50 per cent probability the terminal repo rate could be scaled down from 6 per cent to 5.75 per cent.
SBI Research revises its earlier forecastย
According to the report, the repo rate could be raised by 25 bps in December. Previously, a 50 bps increase was anticipated. The report notes that inflation, the rupee’s position, and global pressures have shown some signs of easing, reducing the likelihood of a significant increase.
Inflation crosses 6% mark
Retail inflation rose to 6.09 per cent in October, exceeding the RBI’s 6 per cent upper limit. This is the first time inflation has exceeded this level in the new series. According to the report, inflation may remain above 6 per cent in November, but is expected to decline thereafter.
Rupee and crude oil may provide relief
According to SBI Research, the RBI’s efforts to reduce rupee volatility are showing results. Foreign investment flows have also improved. Since November 6, India has received approximately USD 7.65 billion in foreign investment. India may also benefit from easing US-Iran tensions and softening crude oil prices. According to the report, crude oil prices have fallen by approximately 11 per cent since the US elections.
How much can EMI increase?
SBI Research estimates the final repo rate level to be 6 per cent. However, it also has a 50 per cent chance of it remaining at 5.75 per cent. The report does not consider another increase in February necessary and expects RBI decisions after December to depend on economic data, including inflation.
US 10-year yield to move towards 4.75%
SBI Research expects the US 10-year yield to move towards 4.75 per cent.
For India, the 10-year yields will likely settle at 6.75-7 per cent, but now 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. We see the terminal repo rate settling at around 6 per cent, with a downside possibility of 5.75 per cent. We assign a 50:50 probability to both these possibilities,” SBI Research said.
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