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RBI set to make fourth straight rate hike to curb inflation, experts say


By PTI IST (Released)

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The RBI, which has since May raised the short-term lending (repo) rate by 140 basis points (bps), could again opt for a 50 bps increase to take it to a three-year high of 5.9%. years, according to experts.

The Reserve Bank of India (RBI) could take inspiration from its global counterparts, including the US Federal Reserve, to raise interest rates for the fourth consecutive time on Friday to tame stubborn inflation.

The RBI, which has since May raised the short-term lending (repo) rate by 140 basis points (bps), could again opt for a 50 bps increase to take it to a three-year high of 5.9%. years, according to experts.

The central bank had raised the repo rate by 40 basis points in May and by 50 basis points each in June and August. The current rate is 5.4%. The consumer price index (CPI) based on retail inflation, which had started to show signs of moderation since May, firmed up again to 7% in August. The RBI takes retail price inflation into account when formulating its bi-monthly monetary policy.

The Monetary Policy Committee (MPC) headed by the RBI Governor is expected to begin its three-day deliberations on Wednesday. The pricing committee’s decision will be announced on Friday (September 30).

The US Fed made the third consecutive rate hike after raising rates by 75 basis points to bring the target range to 3-3.25%. Central banks in the UK and EU also opted for rate hikes to keep inflation under control.

Madan Sabnavis, chief economist at Bank of Baroda, said inflation in India remains high at around 7% and is unlikely to come down anytime soon.

“That means a rate hike is given. The quantum is what the market would be interested in. While a 25 to 35 basis point hike would have signaled that the RBI is confident that the worst of inflation is over, recent developments in the forex market could prompt a 50 basis point higher quantum to stay on track with other markets to retain investor interest,” he said.

The government has instructed the RBI to ensure that retail inflation remains at 4%, with a 2% margin on either side.

Dhruv Agarwala, Group CEO, Housing.com, said controlling inflation will remain the RBI’s top concern amid resilient economic expansion and robust credit growth.

“Any rise in rates would also cause banks to raise mortgage interest rates. But we are of the view that its impact would not be significant as demand for real estate remains robust. Demand will only increase. accelerate further during this festive season,” he said.

Global commodity prices remained volatile after falling from historic highs in June. SBI in a special report said a 50 basis point hike in the repo rate “appears imminent”. “We expect the peak repo rate in the cycle to be 6.25%. A final rate hike of 35 basis points is expected in December,” he said.

CIFAR Chief Economist Aditi Nayar also expects another 50 basis point rate hike from the MPC in September 2022. With inflation expected to ease in October 2022, the policy decision in December will depend on probably heavily data, she added.

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