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CENTRAL BANK ZONE

Reserve Bank of India

In the September policy meet, the MPC hiked policy repo by 50bps to 5.90% (5-1 vote). As on date, the cumulative rate hikes stood at 190bps since May policy. MPC kept the stance unchanged (5-1 vote)to withdrawal of accommodation.

RBI expects inflation at 6.7% in FY23, 5.2% in FY24. We revised our inflation projection down to 6.7% from 6.8% earlier on the back of lower food inflation. Domestic growth outlook is resilient. However, exports are likely to remain muted on the back of global growth slowdown. GDP growth estimate for FY23 at 7%.

With US Fed looking at reducing the magnitude of rate hikes, RBI also likely to raise rate by 35bps . RBI’s peak rate expected at 6.5% with a downside risk.

Federal Reserve

In its policy meeting in November, the FOMC raised the policy rate by 75bps to the 3.75%-4.00% range while indicating that the pace of rate hikes could slow further, even as inflation concerns remain in place. QT framework was kept unchanged.

In the next policy meeting in December, we expect the FOMC to raise the policy rate by 50bps to the 4.25%-4.50% range while indicating via the dot plot that terminal rate will likely be around the 4.75%-5.00% range.

We see the FOMC ending its rate hiking cycle by March 2023 taking the terminal rate to 5% that will be followed by a prolonged pause over 2023 in response the the sharp fall in inflation rates that is expected over Q42022 and H12023.

Bank Of England

In its last policy meeting in November, the BoE raised the policy rates by 75bps to the 3% mark while providing a dovish guidance. The BoE stated that inflation is expected to undershoot and the economy is expected to be in recession over 2022 and 2023. It also stated that the market is over-estimating the peak rate.

In the December policy meeting, we expect the BoE to raise the policy rates by 50bps while providing a dovish guidance.

We see a terminal rate at 4% that will be achieved by Q12023 that will be followed by a prolonged pause.

European Central Bank

In its October policy meeting, the ECB raised its policy rates by 75bps. However, it provided a dovish forward guidance indicating that future actions will be data dependent and take on a meeting by meeting basis. Reinvestment program was kept in place along with a guidance that QT will be discussed in the next policy meeting in December.

We see a further 50bps hike in December policy meeting with a neutral data-dependent guidance. There could also be some clarity on whether it will embark on its own QT program.

We expect a terminal deposit rate at 2.25% implying that another 25bps hike in the January policy meeting is on the cards. In case, inflation surprises to the upside, it might be possible for the central bank to embark on raising rates even higher.

People's Bank of China

The PBOC delivered another 50 bps cut in the RRR in December, cut the one-year loan prime lending rate by 15 bps to 3.75% and cut the one-year medium-term loan facility rate by 10bps to 2.75% reflecting ongoing concerns about the real estate sector and the economy.

The PBOC has become increasingly concerned about inflation. Hence, we see limited possibility of further rate cuts and expect the central bank to move towards a liquidity neutral regime.

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