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Business News/ News / India/  RBI to hike repo rate by 25 bps in Feb. FD rates likely to get more attractive
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RBI to hike repo rate by 25 bps in Feb. FD rates likely to get more attractive

More than three-quarters of economists, 40 of 52, expected the RBI to raise its key repo rate by 25 bps to 6.50%, according to a January 13-27 Reuters poll

RBI repo rate hike: With the December rate hike, the policy repo rate has climbed to a whopping 225 bps so far in FY23.Premium
RBI repo rate hike: With the December rate hike, the policy repo rate has climbed to a whopping 225 bps so far in FY23.

The Reserve Bank of India (RBI) is expected to raise its interest rate by a modest 25 basis points (bps) to 6.50% at its meeting after February 1 Union Budget 2023, a Reuters poll of economists found.

More than three-quarters of economists, 40 of 52, expected the RBI to raise its key repo rate by 25 bps to 6.50%, according to a January 13-27 Reuters poll. The remaining 12 predict no change at the February 8 meeting.

The median forecast was for rates to remain at 6.50% until the end of 2023.

"They (the RBI) need to pause at some point to see what exactly is the impact of the previous monetary tightening overall on growth and inflation. That is why I believe it is not premature for them to pause after 6.50%," said Upasna Bhardwaj, chief economist at Kotak Mahindra Bank, Reuters reported.

"That doesn't mean they will leave the guards off the inflation focus."

With the December rate hike, the policy repo rate has climbed to a whopping 225 bps so far in FY23. At present, the repo rate is at 6.25%. For FY23, RBI's first rate hike was 40 bps in May, followed by three consecutive rate hikes to the tune of 50 bps each between June to October, and then some softening to 35 bps in December policy. Another rate hike by RBI will make fixed deposits attractive The central bank is expected to raise repo rate in February. So, depositors will have another reason to cheers because when RBI hikes the policy repo rate, both fixed deposits and lending rates are likely to go up as well. Banks have been hiking their FD rates aggressively in line with RBI's policy outcomes since May, making this investment option already attractive.

However, this time, the transition of 25 bps repo rate hike to FD rates is expected to be on a slower pace.

By how much banks pass on the benefit of the February policy rate hike on their FDs will be keenly watched.

-With agency inputs

 

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Published: 30 Jan 2023, 08:35 AM IST
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