Another rate hike on the cards, experts say ahead of RBI’s MPC meeting

With inflation showing no signs of abating, the Reserve Bank is expected to raise the benchmark lending rate in quick succession in its next monetary policy review on Wednesday, a hint for which has already been given by Governor Shaktikanta Das, according to experts.

There is speculation that the central bank may opt for a hike of at least 35 basis points (bps) beyond the 40 bps hike made last month after an off-cycle meeting of the Monetary Policy Committee ( MPC). Experts expect further increases in the repo rate in the coming months.

The MPC led by Governor Das will meet for three days starting Monday. The decision reached at the meeting will be announced by the governor on Wednesday.

Retail price inflation, which RBI takes into account when setting its monetary policy, galloped for a seventh consecutive month to hit an 8-year high of 7.79% in April, mainly due to the surge in commodity prices, including fuel, due to ongoing Russia. – Ukrainian War.

Inflation based on wholesale prices has remained in double digits for 13 months and hit a record high of 15.08% in April.

Recently, in a television interview, the governor said that “the expectation of a rate hike is a given, there will be some increase in repo rates, but by how much I can’t say now, but to say that 5.15 can’t be very precise”.

According to MPC expectations, Madan Sabnavis, Chief Economist at Bank of Baroda, said the credit policy to be announced will be important not only from the perspective of rate action, but also from the thoughts of the RBI on growth and inflation.

“The increase in the repo rate can be seen as almost a given, but the quantum may not exceed 25-35 basis points, as early minutes from the meeting held in May indicated that the MPC was not in favor of a big increase in the one-hit repo rate,” Sabnavis said.

The government has taken several measures, including a reduction in fuel duties, a reduction in import duties on some edible oils and a ban on wheat exports, in an attempt to stop inflation.

In a report, BofA Securities said it expects RBI MPC to raise the repo rate by 40 basis points in June and 35 basis points in August.

“We see the RBI MPC revising its inflation forecast upwards, maintaining its growth estimate and its stance with a focus on retreating accommodation,” he added.

On what he expects from the rate-setting panel, Dhruv Agarwala, Group CEO,, and, said the RBI should raise the repo rate again to contain the inflation which is largely driven by the world. factors such as the war in Ukraine.

“At this stage, we can understand the RBI’s compulsion to raise interest rates. However, the rise should be gradual as it could impact the growth of the property sector which is a major driver of the economy” , did he declare.

Rakesh Kaul, CEO of Clix Capital, said the June MPC meeting should definitely see a rate hike, with just the amount in question.

“Unfortunately, with a twin deficit – both fiscal and current – ​​persistent and rising inflation, plus the Federal Reserve raising rates and likely to continue to tighten, the only way out for RBI is to raise interest rates. interest,” he said.

The government has instructed the Reserve Bank to ensure that inflation based on the consumer price index remains at 4% with a margin of 2% on either side.

(Only the title and image of this report may have been edited by Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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