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

[ad_1]

Photo source: PTI

Before the RBI’s MPC meeting, experts say another rate hike on the card

Highlights

  • There is speculation that the central bank may go for an increase of at least 35 basis points (bps)
  • Experts expect the repo rate to rise further next month
  • The MPC, led by Governor Das, will hold a three-day meeting from Monday

With no signs of a slowdown in inflation, the Reserve Bank may raise benchmark lending rates sharply in its forthcoming monetary policy review on Wednesday, an indication already given by Governor Shaktikant Das, opinion experts.

There is speculation that the central bank may go for an increase of at least 35 basis points (bps) from the 40 bps increase that took effect last month after an off-cycle monetary policy committee (MPC) meeting. Experts expect the repo rate to rise further next month.

The MPC, led by Governor Das, will hold a three-day meeting from Monday. The governor will announce the decision taken at the meeting on Wednesday.

Retail inflation, which the RBI attributed when it came to monetary policy, reached an 8-year high of 7.79 percent in April for the seventh consecutive month, mainly due to rising commodity prices, including fuel. Russia-Ukraine war.

Wholesale price-based inflation has been in double digits for 13 months and reached a record high of 15.08 per cent in April.

In a recent TV interview, the governor said “the prospect of a price increase is not a wise thing to do, the repo rate will rise a bit, but I can’t say right now but I can say it could be 5.15. It won’t be very accurate.”

Regarding the expectations from the MPC, Bank of Baroda chief economist Madan Sabnavis said the announcement of the credit policy would be important not only in terms of rate action but also in terms of the RBI’s thinking on growth and inflation.

“The repo rate hike may be taken as approximately paid but Quantum may not exceed 25-35 bps as the minutes before the May meeting indicate that the MPC was not in favor of the repo rate hike. One shot,” Sabnavis said.

To curb inflation, the government has taken several steps, including reducing tariffs on motor fuels, reducing import duty on certain edible oils and banning wheat exports.

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 the RBI MPC revising their inflation forecasts, keeping growth forecasts and focusing on housing withdrawals,” it added.

What he expects from the rate-setting panel, Dhruv Agarwala, Group CEO, Housing.com, PropTiger.com and Makan.com, is that the RBI is expected to raise the repo rate again to control inflation, largely driven by global factors such as the Ukraine war.

“At the moment we understand the RBI’s obligation to raise interest rates. However, growth should be slow as it could affect the growth of the real estate sector which is a major driver of the economy,” he said.

Rakesh Kaul, CEO, Clix Capital, said the June MPC meeting is certainly expected to be a rate hike, with Quantum in question only.

“Unfortunately, with a pair of deficits – both in the fiscal year as well as in the current account – and the continued rise in inflation, as well as the Federal Reserve, the only way for the RBI is to raise interest rates,” he said.

The government has given the Reserve Bank a two per cent margin on both sides to ensure that consumer price index-based inflation remains at 4 per cent.

Also read | EPF is still the top scorer – 5 reasons why interest rates are less than 40-year low

Latest business news

.

[ad_2]

Leave a Reply

Your email address will not be published.