Economists are divided over another rate hike and its scale after minutes released by the RBI showed two members of the interest rate-setting panel had warned that excessive tightening could have adverse implications on economic growth even as others maintained that low and stable inflation is necessary for strengthening growth.

On February 8, the MPC had by a majority increased the policy repo rate by 25 basis points to 6.50 per cent. The MPC minutes showed that Ashima Goyal and Jayanth Varma had voted against the hike.

According to Radhika Rao, senior economist at DBS Bank, a majority of the MPC is likely to vote for a 25 basis points increase in April with an unchanged stance, due to an elevated January inflation outturn, sticky core inflation, and a likelihood that February inflation, which will be released in the middle of March, may also stay close to 6.3-6.5 per cent.

She added that after this hike, the MPC could turn data dependent on the path ahead. Rao pointed out that overnight US Fed minutes also reaffirmed their tough stance on inflation, increasing the likelihood of a higher terminal rate.

“A hawkish MPC stance will help counter the impact of any resultant jump in US yields/dollar. That said, the policy preference is to keep the currency at competitive levels versus regionals,’’ she said.

However, Soumya Kanti Ghosh, group chief economic adviser of SBI, feels that going forward, the MPC will either pause or settle for a low quantum of 15 basis points. Ghosh said in a report that while the MPC decision shows a heterogenous conglomerate, there has been considerable dissent in its meetings and members, especially academicians, have taken a minority approach against the policy decision.

He added that voting by majority members in the panel in unison lets the minority viewpoint get lost in the record of minutes and makes no change in RBI policy making.

Moreover, the disagreement with the majority view has not been limited to external MPC members as internal members have also differed on the size as well as direction of policy rate changes.

Ghosh said to reflect into the minority viewpoint on policy action, the bank has developed a ‘interest rate skewness index’ to measure disagreement in MPC decisions.

Economists at Kotak said that prior to the January inflation print, they were fully convinced about a prolonged pause by the RBI MPC with the repo rate at 6.5 per cent. However, the surge in the January headline number to 6.52 per cent has raised the risk of higher terminal repo rate.