Home / News / India /  RBI may raise inflation, growth target alongside rate hike in August policy
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In the upcoming monetary policy, the Reserve Bank of India (RBI) is expected to hike the policy repo rate but is also likely to revise its inflation forecast upwards and growth forecast downwards. RBI governor Shaktikanta Das and other MPC members will present August policy for FY23, on Friday. The majority of experts are factoring in a rate hike between 25 basis points to 50 basis points in this policy.

MPC's three-day meeting has already begun on August 3. Thursday is the second day of the meeting followed by the policy outcome on August 5.

In a note, Siddharth Kothari, an economist with Sunidhi Securities said, a shift to a slower pace of rate hike by RBI after an initial front-loading is their underlying expectation from the August MPC Policy.

Further, Kothari expects the RBI to change its monetary policy stance from "withdrawal of accommodation" to "calibrated tightening" to indicate RBI will not be bound to increase rates at every meeting, as reported by Reuters.

In June policy, RBI decided to remain focused on the withdrawal of accommodation to ensure that inflation remains within the target going forward while supporting growth.

As per a Reuters poll of economists, market participants remain divided over the quantum of rate hike likely on Friday, with views widely split between 25 basis points and 50 basis points.

However, Kothari forecasts RBI to increase its inflation forecast marginally by 20 basis points to 6.70% for this financial year ending in March, while trimming the growth forecast by 40 bps to 6.80% from the current 7.2%.

RBI increased its policy repo rate by 40% basis points in May followed by another hike of 50 basis points in June. The policy repo rate currently stands at 4.90%.

Also, the standing deposit facility (SDF) rate stands at 4.65%, and the marginal standing facility (MSF) rate and the Bank Rate at 5.15%.

During June 2022 policy, RBI projected inflation at 6.7% in 2022-23, with Q1 at 7.5%; Q2 at 7.4%; Q3 at 6.2%; and Q4 at 5.8%, with risks evenly balanced.

India's consumer price index (CPI) inflation currently is at 7.01% in June 2022 which slightly moderated from 7.01% in May. This year, in April, Inflation peaked at 7.79%. With that, inflation has stayed above RBI's upper limit of 6% for the sixth consecutive month.

Further, RBI had retained its forecast for India's GDP for FY23 at 7.2% --- with the economic growth projection at 16.2% in Q1; 6.2% in Q2, 4.1% in Q3; and 4% in Q4 --- with risks broadly balanced.

Lastly, Sunidhi economist stated, a slower pace of rate hikes hereon starting August could continue to act as a guiding force for anchoring inflation expectations to bring in price stability without impinging on the growth drivers of the economy.

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