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The Reserve Bank of India (RBI) will begin its three-day monetary policy committee meeting today, Monday. Financial markets will be keenly watching the committee's stance as consumer inflation is still above the 6% target band.

Madan Sabnavis, Chief Economist at Bank of Baroda believes that the MPC will continue with rate hikes though the magnitude will be lower.

"The RBI will be presenting the monetary policy against the backdrop of GDP growth slowing down as well as inflation being high above 6 percent. We do believe that the MPC will continue with rate hikes this time though the magnitude will be lower - probably 25-35 bps," the official told ANI.

Sabnavis specifically believes that the terminal repo rate for the financial year is expected to be 6.5 percent, which essentially means there will be one more rate hike in the February meeting.

"It is unlikely to change the stance and the withdrawal of liquidity will continue. While the RBI will take a hard look at both the GDP and inflation projections, there could be some downward revision for GDP growth. In short, there will not be any surprise for the market just as is the case for global markets too which are now expecting more moderate increases in interest rates by the Fed," he was quoted by ANI. 

Earlier, the central bank had increased the key policy rate by 190 basis points since May to 5.9% to cool off domestic retail inflation that has stayed above the RBI's upper tolerance limit for over three quarters now. In October, retail inflation was 6.77 percent.

As per economists polled by Reuters, the central bank will likely raise interest rates by a smaller 35 basis points, to 6.25 percent. The last three times the RBI has raised rates by 50 bps.

The Reserve Bank of India (RBI) will come out with its next bi-monthly policy review on December 7 at the end of the three-day meeting of the MPC.

 

(With ANI inputs)

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