Home / News / India /  RBI likely to hike repo rates for fourth time to quell inflation on September 30: Experts

RBI likely to hike repo rates for fourth time to quell inflation on September 30: Experts

On 28 September, the RBI Governor-headed Monetary Policy Committee (MPC) is scheduled to start its three-day deliberations and the decision of the rate-setting panel would be announced on 30 September.. Photo: Aniruddha Chowdhury/MintPremium
On 28 September, the RBI Governor-headed Monetary Policy Committee (MPC) is scheduled to start its three-day deliberations and the decision of the rate-setting panel would be announced on 30 September.. Photo: Aniruddha Chowdhury/Mint

  • The central bank in May raised the repo rate by 40 bps, while in June and August, it made a revision by hiking it 50 bps each, taking the present rate at 5.4%.

With the Federal Reserve revising the rates by increasing it 75 basis points (bps) in September to take the target range to 3 - 3.25 per cent, Indian experts view the Reserve bank of India may follow the suit and raise interest rate for the fourth time in a row on 30 September to tame stubborn inflation.

Since May, the RBI had raised the short-term lending rate (repo) by 140 basis points (bps) and experts point that the central bank may again go for a hike of 50-bps to take it to a three-year high of 5.9 per cent.

The central bank in May raised the repo rate by 40 bps, while in June and August, it made a revision by hiking it 50 bps each, taking the present rate at 5.4 per cent.

In August, the consumer price index (CPI) based retail inflation firmed up to 7 per cent, which started showing signs of moderation since May. While framing its bi-monthly monetary policy, RBI takes into account retail inflation.

ALSO READ: RBI interest rate decision, global trends to drive markets this week: Analysts

On 28 September, the RBI Governor-headed Monetary Policy Committee (MPC) is scheduled to start its three-day deliberations and the decision of the rate-setting panel would be announced on 30 September.

It is to be reminded that Federal Reserve of the United States Chairman Jerome Powell on 21 September delivered third consecutive rate hike after it raised the rates by 75 bps to take the target range to 3 - 3.25 per cent.

Following this, the Bank of England increased the key base rate to 2.25 per cent, considered to be the highest since 2008. the EU have also gone for rate hikes to tame inflation.

According to Bank of Baroda's Chief Economist Madan Sabnavis the inflation in India remains high at around 7 per cent and is unlikely to come down any time soon.

"This means that a rate hike is given. The quantum is what the market would be interested in. While a hike of 25-35 bps would have signaled that the RBI is confident that the worst of inflation is over, the recent developments in the forex market could prompt a higher quantum of 50 bps to stay on track with other markets so as to retain investor interest," he said.

Meanwhile, the Union government has requested the RBI to keep the retail inflation at check and see it does not cross 4 per cent, with a margin of 2 per cent on either side.

Housing.com Group CEO Dhruv Agarwala said reining in inflation will remain the RBI's top concern amid resilient economic expansion and robust credit growth.

After the fall from historical highs in June, global commodity prices have remained volatile.

Though SBI in its recent report signaled a 50 basis points hike in repo rate by RBI and called it 'imminent'. "We expect the peak repo rate in the cycle at 6.25 per cent. A final rate hike of 35 bps is expected in December policy," it said.

ICRA Chief Economist Aditi Nayar too expects another 'new normal' 50 bps rate hike from the MPC in September 2022. With inflation expected to soften in October 2022, the December policy decision is likely to be highly data dependent, she added.

With PTI inputs. 

 

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