Home / Economy / RBI's panel starts deliberations, 50 bps rate hike highly likely

The Reserve Bank of India's (RBI) rate-setting panel started its three-day deliberations on the keenly awaited monetary policy today amidst expectation of yet another rate hike of 50 basis points to curb inflation and improve foreign capital inflow to arrest declining value of rupee against the US dollar.

The RBI's decision will be in line with similar actions taken by other major central banks, including the US Federal Reserve.

Dr Sachchidanand Shukla, Chief Economist of Mahindra & Mahindra, said, "The MPC will continue to front load its rate hikes and will likely raise the repo rate by another 50 bps in its upcoming policy as:

- Notwithstanding that Fed rate is now the highest since early 2008, the US Fed has hinted that it will continue to raise rates going forward, which will further tighten global financial conditions and impart strength to the USD.

- India’s retail inflation rate has been above the RBI’s tolerance band for eight months now and is unlikely to come down before Q4 of FY23. Thus, it will remain above the tolerance band for three consecutive quarters, which will be deemed a failure to attain the inflation target. Moreover, the real policy rate remains in the negative territory.

- The RBI may revise its FY23 growth forecast a tad lower from 7.2% but keep the inflation forecast unchanged."

Hike in policy interest rates in range of 35-50 bps seems unavoidable

Industry body Assocham said hike in policy interest rates by the central bank in the range of 35-50 basis points seems unavoidable, given the tightening of rates by most of the central banks including the US Fed.

"While the industry would like to see lower interest rates, the main challenge and the priority is to tackle inflation head-on so that we have a sustainable growth," said chamber's Secretary General Deepak Sood.

Ramesh Nair, CEO, India and Managing Director, Market Development, Asia, Colliers expects the repo rates to see a further rise, as the central government is trying to curb inflation levels.

"The current repo rates stand at 5.4% with the rate hovering above pre-pandemic levels. Banks have begun raising loan interest levels as a result of higher repo rate," Nair said.

However, the upcoming festive season will spur sales as the developers are expected to offer attractive deals to homebuyers and this could neutralise the impact of rising home loan rates to some extent, he added.

The decision of RBI Governor Shaktikanta Das headed six-member Monetary Policy Committee (MPC) will be announced on Friday.

 

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