ICICI predicts rates reversing in coming months

Bloomberg

ICICI Bank Ltd., India’s second-largest private lender by assets, predicts the nation’s rate-cut cycle has ended and traders should brace for tightening in the coming months. “Reduction in the interest rate cycle has stopped now,” Chief Executive Officer Chanda Kochhar said in an interview with Bloom-berg TV. “We should be prepared for an increase over a period.”
Kochhar wades into a debate about the timing of tightening days before the government’s budget announcement due February 1, the central bank’s policy review February 7, and the first price and output readings for 2018 later this month. Indian bonds have been Asia’s worst performers over the past quarter as public revenue slips and inflation breached the official target.
Analysts and Indian bank executives have made a variety of forecasts on what lies ahead. The Reserve Bank of India will probably keep the benchmark repurchase rate unchanged at 6 percent this year, according to most economists in a Bloomberg survey, while swap markets are pricing in an increase to 6.5 percent during the period. Uday Kotak, managing director of private lender Kotak Mahindra Bank Ltd., sees rates rising in August — or maybe even June. Rajnish Kumar, chairman of State Bank of India, which is the nation’s biggest state-run lender, said bond yields and the policy rate are unlikely to increase for “a year or so.”
‘WATERSHED MOMENT’
The divergence in views comes from uncertainty about the strength of Asia’s No. 3 economy. Growth is beginning to recover and all high-frequency indicators point towards faster expansion, Kochhar said. Latest data show credit increased at the fastest pace since February 2016.
However, inflation accelerated to a 17-month high in December and little respite is seen in the coming months amid a surge in oil prices.
The Reserve Bank of India retained its neutral monetary stance in December and Governor Urjit Patel said that means “all possibilities are there on
the table.”