Business

The RBI is expected to raise interest rates by 0.40 % next week, according to a report

Next week’s scheduled review of the Reserve Bank of India’s (RBI) monetary policy is anticipated to result in a 0.40% rate hike. This is due to the country’s high inflation rate.

The RBI’s rate setting panel will increase rates by 0.35% at the next review in August, or by 0.50 % next week and 0.25% in August, bringing the total number of rate hikes to 0.75%, according to a report by Bofa Securities.

The company predicts that the headline inflation rate for May will be 7.1% due to the strong spike in tomato prices.

While listing initiatives such as excise tax decreases on petroleum goods, duty-free imports of crude soyabean and sunflower oil, and price reductions for ATF, the study states that such actions will assist prevent an inflationary spiral.

Shri Shaktikanta Das(RBI Head)
Shri Shaktikanta Das(RBI Head)

In FY23, the inflation rate will average 6.8%, which is significantly higher than the RBI’s tolerance ceiling of 6%.

The central bank would itself revise its forecast for FY23 to 6.5% from the current 5.7%, the statement continued.

The policy repo rate was increased by 40 basis points, or 0.40%, during the off-cycle monetary policy review in May. In nearly two years, this was the first time the policy repo rate has increased. Repo rate is the interest rate at which the Reserve Bank of India lends banks short-term cash.

“The off-cycle rate hike has fueled anticipation that RBI may accelerate rate hike decisions. With the United States not yet reversing its pace and magnitude of rate hikes and inflation showing no immediate signs of abating, it appears that the next policy decision will be to increase interest rates “Kotak Mahindra Asset Management Company’s Chief Investment Officer (Debt) and Head of Products, Lakshmi Iyer, stated as much.

Read Also: From RBI MPC meeting to US inflation data will be discussed, this week’s top 5 catalysts for the stock market

Iyer stated that the rate increase would be in the range of 40 to 50 basis points

“The amount of the rate increase, 40 to 50 basis points according to our estimation, will be a crucial factor in extrapolating the final repo rate for fiscal year 2023. Even while bond markets have already discounted aggressive tightening, the policy stance will continue to influence the path of bond yields “She stated,

6-8 June MPC meeting of RBI

The Monetary Policy Committee of the RBI will convene from June 6-8. The announcement of monetary policy decisions is set for June 8.

During the first monetary policy committee meeting of the current fiscal year, which took place from April 6-8, the RBI did not alter key interest rates. Due to the changing inflation-growth dynamics and the impact of the Russia-Ukraine conflict, the monetary policy committee decided to increase the policy repo rate by 40 basis points to 4.40% at an off-cycle meeting on May 2 and 4, 2022. Since May 2020, this was the first increase in the policy repo rate.

Read Also: The Week Ahead on Dalal Street: Top 10 Things to Look Out For

The RBI is projected to increase the policy repo rate to 5.65% by the end of the current fiscal year, up from the current 4.40%.

RBI
RBI

In last month’s off-cycle monetary policy review, the central bank also increased the Cash Reserve Ratio (CRR) by 50 basis points, to 4%. With the 50 basis point increase in CRR, the RBI drained 87 trillion from the system.

Recently, RBI Governor Shaktikanta Das stated definitely that the policy rate would increase in June. In an interview, Das stated that June rate hike expectations are “obvious.”

“We may have witnessed the inflationary apex for the time being, but we may not have seen the end of it yet. And failure to reduce inflation even after the central bank has reached the neutral rate could destabilise the economy “Executive Vice President of Kotak Mahindra Life Insurance Company Churchil Bhatt stated.

Read Also: Why has Netflix failed to get into the Indian market?, clarify With Video

“Failure to manage inflation should terrify markets more than policymakers’ efforts to combat it. In June, we anticipate the MPC to announce a rate hike of 25 to 40 basis points (bps) “Bhatt noted.

In April, India’s Consumer Price Index (CPI)-based inflation reached its highest level in eight years, 7.79%. Inflation will certainly continue above 7% in May as well.

Bank of America Securities, a foreign brokerage business, predicts that the RBI would likely raise the policy rate by 0.40% next week and 0.35% in August.

Next week, the RBI may boost the repo rate by an additional 0.40%. In addition, 0.35% growth is possible in the August review as well. If this does not occur, the RBI may decide to raise rates by 0.50% next week and 0.25% in August, according to a report by Bank of America Securities.

In recent months, headline inflation has been well above the RBI’s 6% objective. The Reserve Bank of India (RBI) is anticipated to implement strong monetary policy tightening in order to bring inflation down to the desired level.

“We, at the RBI, remain committed to containing inflation and supporting growth. Inflation must be reined in if the Indian economy is to maintain its commitment to sustainable and inclusive growth “On May 4, the RBI Governor stated in his monetary policy statement.

Shri Shaktikanta Das(RBI Head)
Shri Shaktikanta Das(RBI Head)

Regarding inflation, Bank of America Securities predicts that retail inflation will fall to 7.1% in May. Inflation as measured by the CPI is anticipated to average 6.8% for the current fiscal year.

In April, the Reserve Bank of India (RBI) increased its inflation forecast for the current fiscal year from 4.5% in February to 5.7%.

Bank of America Securities predicts that the RBI will likely increase its inflation forecast for the current fiscal year to 6.5%. The RBI will likely revise its inflation projections upward either next week or in August.

Read Also: Four of the top 10 corporations add m-cap by $2.31 billion; Reliance leads

Related Articles

Back to top button

Adblock Detected

Please consider supporting us by disabling your ad blocker