RBI plans to another hike interest rates by 0.40 percent: Report

The Reserve Bank of India (RBI) is expected to hike interest rates by 0.40 percent at its next monetary policy review next week, according to a foreign brokerage on Friday.

According to a report by BofA Securities, the central bank's rate-setting panel will follow it up with a 0.35 percent hike in rates at the next review in August, or divide it into a 0.50 percent hike next week and a 0.25 percent increase in August, bringing the total quantum of rate hikes to 0.75 percent.

The RBI raised rates by 0.40 percent on May 4, and Governor Shaktikanta Das has already called a rate hike at the May review a "no-brainer" given the pressure to keep inflation in the target zone of less than 6%.

The report said that measures such as excise duty reductions on fuel goods, tax-free imports of crude soyabean and sunflower oil, and price cuts in aviation turbine fuel (ATF) would help avoid a runaway surge in inflation.

However, it predicted that consumer price inflation will average 6.8 percent in 2022-23, much over the RBI's tolerance limit of 6%.

The central bank would increase its estimate to 6.5 percent in 2022-23 from the current 5.7 percent, it said.

"... we expect the RBI MPC to hike policy repo rate by 0.40 per cent in June and 0.35 per cent in August. We must highlight that for the sake standardised steps, the chances of delivering a 0.50 0.25 per cent hike combination is quite high too," the report said.

The important point is that the RBI MPC will leave ultra-accommodation by August and return the policy repo rate to its pre-pandemic level of 5.15 percent, adding that if inflation remains high after that, the RBI will raise the repo rate to 5.65 percent by the end of 2022-23.

According to the brokerage, the Cash Reserve Ratio (CRR), or the ratio of demand deposits maintained by lenders with the RBI without any return, would rise by 0.50 percent as the central bank seeks to normalise liquidity conditions by reducing surplus stock.

It should be mentioned that the RBI raised the CRR by 0.50 percent to 4 percent on May 4 in order to remove 87,000 crores of liquidity from the system.

In terms of growth, the firm maintained its prediction of 7.4 percent real GDP growth in 2022-23 and said that the RBI would likewise keep its 7.2 percent estimate.

Post a Comment

Comments are welcomed and encouraged on Stuffsearth Website, but there are some instances where comments will be edited or deleted as follows:

Comments deemed to be spam or solely promotional in nature will be deleted. Including a link to relevant content is permitted, but comments should be relevant to the post topic.
Comments including profanity will be deleted.
Comments containing language or concepts that could be deemed offensive will be deleted. Note this may include abusive, threatening, pornographic, offensive, misleading or libelous language.
Comments that attack an individual directly will be deleted.
Comments that harass other posters will be deleted. Please be respectful toward other contributors.
Anonymous comments will be deleted. We only accept comments from posters who identify themselves.
The owner of this Website reserves the right to edit or delete any comments submitted to the 'Website's Post/Content' without prior notice. This comment policy is subject to change at any time. If you have any questions about the commenting policy, please let us know by using our 'Contact Us' form .

To Top