RBI likely to raise key policy rate by 25-35 bps to check inflation: Experts
A few days after Fed As raised interest rates, RBI could enter for an increase in the third policy level of 25-35 base points for checking high retail inflation, experts said. The central bank has announced to gradually withdraw its accommodative monetary policy attitude.
Panel Determination of the Reserve Bank-Monetary Policy Tariff Tariff Meet on August 3 for three days to negotiate about the applicable economic situation and announce a two-monthly review on Friday.
With retail inflation serving above 6 percent for six months, RBI has increased the short-term loan rate (Repo) twice-with 40 basis points in May and 50 basis points in June.
The existing repo level of 4.9 percent is still below the pre-covid level of 5.15 percent. The central bank sharply reduced the level of benchmark in 2020 to install a crisis created by the Pandemic plague.
Experts hold the view that the Reserve Bank of India (RBI) will increase the level of benchmarks to at least the pre-Pandemic level this week and even further in the following months.
We now expect RBI MPC to increase the level of policy repo by 35 BPS on August 5 and change attitude into a calibrated tightening, “said Bofa Global Research Report.
The possibility of 50 bps aggressive and the increase in 25 bps measured also cannot be ruled out, he added. The possibility of 50 bps aggressive and the increase in 25 bps measured also cannot be ruled out, he added.
A research report by the Bank of Baroda said that while the Federal Reserve raised a tariff of 225 bps in CY22, RBI had raised a repo tariff of 90 bps. The increase in aggressive interest rates by The Fed is to provide expectations that RBI can also contain an increase in tariffs. However, the conditions in India do not guarantee an aggressive attitude by RBI, he added.
“… In the absence of a new shock, the Indian inflation track is likely to develop in line with the RBI projection. Therefore, we hope that RBI can increase the tariff of only 25 bps in Aug’22, followed by an increase in the other 25 BPS level in two in two The next meeting, “he said.
The government has assigned a bank reserve to ensure inflation based on a fixed consumer price index of 4 percent with two percent margin on both sides.
Dhruv Agarwala, CEO of Group, housing.com, said that while other banking regulators around the world, including Fed As, raised interest rates aggressively, the situation in India did not guarantee such an approach.
“In our estimate, it is expected to be in the range of 20-25 basis points,” he said.
In a report, Radhika Rao, Executive Director and Senior Economist at DBS Group Research, said the RBI Monetary Policy Committee is expected to remain focused on price stability for the next two quarters.
Factoring in peak inflation in the July-September quarter, we now expect an increase in 35 bps in August, followed by three 25 bps for the term “to level up 6 percent at the end of-FY23”, he argues.
Retail inflation based on the Consumer Price Index (CPI), whose RBI factor reached its monetary policy, was above 6 percent since January 2022. That was 7.01 percent in June.
