Another rate hike on the cards, say experts ahead of RBI’s MPC meeting
Highlight
- There is speculation that the central bank may hike by at least 35 basis points (bps)
- Experts expect further hike in repo rate in the coming months
- MPC headed by Governor Das will meet for three days from Monday
With inflation showing no signs of moderating, the Reserve Bank is likely to sharply hike the benchmark lending rate in its upcoming monetary policy review on Wednesday, a signal for which Governor Shaktikanta Das, experts have already indicated.
There is speculation that the central bank may increase by at least 35 basis points (bps) from the 40 bps hike effective last month after the off-cycle Monetary Policy Committee (MPC) meeting. Experts are expecting a further hike in the repo rate in the coming months.
The MPC headed by Governor Das will meet for three days starting Monday. The decision taken during the meeting will be announced by the Governor on Wednesday.
Retail inflation, which the RBI factors in while arriving at its monetary policy, rose for the seventh month in a row in April to an 8-year high of 7.79 per cent, mainly due to higher commodity prices, including fuel. Russo-Ukraine War.
Wholesale price-based inflation has remained in double digits for 13 months and touched a record high of 15.08 per cent in April.
In a recent TV interview, the governor said that “expectation of rate hike is redundant, there will be some hike in repo rates, but right now I can’t tell that 5.15 May may not be very accurate”.
On expectations from the MPC, Bank of Baroda Chief Economist Madan Sabnavis said the loan policy to be announced will be important from the perspective of not only rate action but also RBI’s views on growth and inflation.
“The hike in the repo rate can be almost given but the volume cannot exceed 25-35 bps as the minutes of the meeting held in May indicated that the MPC was not in favor of a major hike in the repo rate. shot,” Sabnavis said.
The government has taken several steps to check inflation, including reduction in duty on motor fuels, reduction in import duty on some edible oils and ban on export of wheat.
In a report, BofA Securities said it expects the RBI MPC to raise the repo rate by 40 bps in June and 35 bps in August.
“We see that the RBI MPC revises its inflation forecast, retains the growth forecast and focuses on the return of housing,” it added.
What he expects from the rate-setting panel, Dhruv Aggarwal, Group CEO of Housing.com, PropTiger.com and Makaan.com, said RBI is expected to hike the repo rate once again to control inflation operating on a large scale. Global factors such as the Ukraine war.
“At this point in time we can understand the compulsion of the RBI to raise interest rates. However, the hike should be gradual as it may affect the growth of the real estate sector which is a major driver of the economy,” he said.
Clix Capital CEO Rakesh Kaul said the June MPC meeting is definitely expected to hike rates, with only the quantum in question.
“Unfortunately, with a double deficit – both in the fiscal and current accounts – persistent and rising inflation, as well as the Federal Reserve, with rates rising and the prospect of tightening, the only way out for the RBI is to raise interest rates,” he said. Told.
The government has tasked the Reserve Bank with the task of ensuring that CPI-based inflation remains at 4 per cent with a difference of two per cent on either side.
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