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Home / News / India /  RBI may raise key policy rate by 25-35 bps to tame inflation: Report
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Experts believe RBI may go for its third consecutive rate hike by 25-35 basis points to keep inflation in check. RBI is set to announce its bi-monthly monetary policy outcome later this week. The six-member MPC will meet from August 3 to discuss the monetary policy and the result will be announced on Friday (August 5). Due to multi-year high inflation, RBI is expected to hike the repo rate yet again. RBI has already made a 90 basis points rate hike in the past two policies as inflation stayed over its comfort limit of 6%.

BofA Global Research in its report said, "We now expect the RBI MPC to raise the policy repo rate by 35 bps on August 5 and change stance to calibrated tightening, as reported by PTI.

It added that the possibility of an aggressive 50 bps and a measured 25 bps hike cannot be ruled out either.

Meanwhile, another research report by the Bank of Baroda said while the Federal Reserve raised the rate by 225 basis points in the current year, the RBI has hiked the repo rate by 90 basis points. It added that an aggressive rate hike by the Fed is feeding expectations that the RBI may also front load its rate hikes.

However, the BoB report believes the latest conditions in India do not warrant an aggressive stance by the central bank.

In its research note, BoB said in the absence of any fresh shocks, India's inflation trajectory is likely to evolve in line with the RBI's projections. Thereby, BoB expects RBI to hike rates by only 25 basis points in August policy, followed by another 25 basis points increase in the next two meetings.

The majority of experts are factoring a rate hike in the range of 20 basis points to 35 basis points, but a hike of 50 basis points is also not ruled out.

The country's CPI inflation moderated slightly to 7.01% in June compared to 7.04% in May 2022. However, inflation remained elevated and above RBI's upper limit of 6% for the sixth consecutive month. Notably, CPI inflation peaked at 7.79% in April. 

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

The latest research report of ICICI Securities, RBI will raise the repo rate to 5.5% (another 60bp), with a heightened risk of front-loading the hikes (rather than gradual increases until Oct 22). However, the report also added that the combination of higher policy rates, and an easing of global supply constraints on crude-oil and edible oils, should allow CPI inflation to edge below 6% YoY as the Kharif harvest arrives in Nov’22.

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