Stories
RBI May Hike Repo Rate Twice by December as Inflation Stays Sticky: Templeton's Kiran Sebastian
- •Kiran Sebastian of Templeton Global Investments predicts inflation will remain elevated through FY27, potentially reaching 5.5% and staying above 5% for several quarters.
- •He forecasts two 25-basis-point RBI repo rate hikes in October and December, bringing the rate to 5.75%, driven by persistent oil prices, food inflation, and currency pressures.
- •Elevated oil prices pose a significant headwind for India, impacting inflation, current account deficit, fiscal position, and consumer spending.
- •Sebastian favors India's electronics manufacturing sector, anticipating a shift from mobile assembly to increased local value addition in components like display modules, PCBs, and semiconductor packaging.
- •He notes that the US Federal Reserve's policy will be guided by inflation and labor market data, with further tightening possible if inflation remains high and growth resilient.
Key Questions Answered
According to Kiran Sebastian of Templeton Global Investments, there is a high chance of 25-basis-point rate hikes at the October and December meetings, which would bring the repo rate to 5.75 percent. Nomura similarly revised its call to two 25-bps hikes in Q4 taking the rate to 5.75%.
The electronics manufacturing sector is moving into a new phase focused on increasing local value addition. While the first phase concentrated on mobile phone assembly, the upcoming phase will include components such as display modules, camera modules, PCBs, batteries, and semiconductor packaging.
Retail inflation is expected to remain elevated due to broad-based price pressures, elevated crude oil prices, weather-related risks like El Niño, and rising core inflation. Additionally, the RBI projected retail inflation higher at 5.1 percent due to mounting input costs from global energy prices.
