Crisil sees 25 bps MPC hike in October, 50 bps this fiscal

MPC rate hikes imminent amid crude shock and yield surge; private capex to remain resilient: Crisil's Dipti Deshpande

Mumbai, October 5

Speaking to ANI in Mumbai on Monday in an exclusive interview, Deshpande highlighted the growing stress on input prices. "Oil prices last time were around USD 85... Now they are closer to USD 120, at least for the Indian basket," she said.

She warned that with a 13 per cent rainfall deficit in the southwest monsoon, "producers will start to pass on these retail prices because they would not want to crimp their profits even further," ultimately pushing up core inflation.

Despite rising borrowing costs, private capex and corporate investment plans are expected to hold steady. Deshpande pointed out that manufacturing capacity utilisation currently sits near 75%, a level that historically triggers fresh capital deployment.

"Interest rates are not the number one aspect that encourages or discourages corporate borrowing and capex," she explained, reiterating that a measured rate hike cycle will not severely hamper credit flow.

Surging crude prices and global monetary tightening continue to keep 10-year G-Sec yields firm above 7 per cent. However, Deshpande foresees some softness in bond yields toward March as ongoing fiscal consolidation acts as an anchor. On currency dynamics, she ruled out rate hikes aimed solely at defending the local unit.

"At the moment, we have an appreciation bias for the rupee... foreign investors also look at growth differentials, and I think that is a differential that the Indian economy does have to offer," she noted.

India's primary defence against persistent external shocks lies in its robust structural cushions.

Deshpande highlighted strong corporate balance sheets, low non-performing assets in the banking system, and solid underlying growth.

However, she cautioned that prolonged geopolitical spillovers could erode these buffers over time. "If these pressures... continue and persist beyond a year... then all of these buffers will start depleting," she warned.

Looking ahead to the upcoming Monetary Policy Committee decision, Crisil expects a clear shift toward monetary tightening. "The forthcoming October policy will see the first rate hike of the year, and then that could be followed by another one towards the end of this fiscal year," Deshpande stated.

Crisil projects an initial 25 basis point hike by the MPC in October, building to a cumulative 50 basis point increase this fiscal year to manage persistent inflation risks.

— ANI