According to experts, the RBI may go for a 25-35 basis points rate increase for the third consecutive time and likely change its ‘accommodative’ stance. Earlier, the RBI had signaled its decision to withdraw its accommodative stance and shift towards a neutral stance while prioritising controlling inflation over growth.
The Federal Reserve-led aggressive rate hike by 225 basis points this year is leading to the expectation of another rate increase in India as well. Moreover, the Indian rupee’s plunge to all-time low to bump up imported inflation has added to rate increase speculation in this week’s policy review.
The RBI, like other global central banks, is on a tightening spree, noted. It expects the RBI to raise the repo rate in the upcoming meeting by 35-50 basis points.
“However, we do not foresee a long-lasting tightening cycle. Global growth downturn, falling commodity (food, metals, and to some extent crude oil) would help ease price pressures down the line,” Edelweiss said in a report.
A Reuters poll, conducted between July 25 to August 1, of 63 economists predicted a rate increase in the range of 25-to-50 bps.
BofA, in its research report, stated that it expects a hike by 35 bps along with a change in stance to calibrated tightening. However, it did not discard the possibility of an aggressive 50 bps and a measured 25 bps hike.
Experts are of the view that the RBI will raise the benchmark rate to at least the pre-pandemic level this week and even further in later months.
In contrast to the projections and estimates by multiple research firms, a report by
said, “conditions in India do not warrant an aggressive stance by the RBI.”
“…in the absence of any fresh shocks, India’s inflation trajectory is likely to evolve in line with the RBI’s projections. Hence, we expect that the RBI may hike rates by only 25 bps in Aug’22, followed by another 25 bps rate hikes in the next two meetings,” it stated.
The policy meet comes soon after Finance Minister Nirmala Sitharaman assured that the Indian economy, compared to the situation prevailing in many of the other peer groups and in many of the developed economies, is definitely much better.
On inflation, Sitharaman said the government and the central bank has taken enough steps to keep inflation at 7% or ideally below 6%. The RBI is mandated to target inflation in a band of 2-6%.
During the June policy, RBI Governor Shaktikanta Das had said that price rise is much beyond the tolerance level. However, he recently suggested that inflation will ease in the fiscal second half and has peaked. However, he also underscored the volatile nature of the inflation pressures.
Retail inflation in India had eased to 7.01% in June, but the print stayed over the RBI’s tolerance ceiling of 6% for the sixth consecutive month. Consumer prices in India had surged to an eight-year high at 7.80% in April. The wholesale inflation has been in the double-digit for 15 consecutive months.
The Monetary Policy Committee has increased the key interest rates by 90 basis points in two tranches since May to take it to 4.90% from its historic low of 4%.
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