RBI set to hike repo rate in October MPC meet amid rising inflation
RBI MPC to meet from Oct 5-7 to decide on repo rate. Economists including BofA, SBI Research & Nomura expect 25 bps rate hike in October instead of December due to rising energy prices, food inflation at 4.82%, crude above $100 and global bond yields.
New Delhi (The Uttam Hindu): The Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) is scheduled to meet next week. Ahead of the meeting, economists believe the central bank may begin raising interest rates. Previously expected in December, the rate hikes are now projected to begin in October.
According to Bank of America (BofA), rising energy prices, food inflation, and all-round inflationary pressures are likely to lead to a 25 basis point (bps) rate hike in October, as opposed to the earlier estimate for December. "After nearly two years of monetary easing, the RBI appears poised to take initial steps to withdraw policy support at the October MPC. Therefore, we expect the RBI to hike rates by 25 bps at the October MPC," BofA said.
SBI Research also stated in its report that the risk of a 25-bps rate hike has increased significantly at this time. Widening inflationary pressures, worsening global conditions, liquidity conditions, and a reassessment of global risks reinforce the need for pre-emptive action.
The RBI's Monetary Policy Committee (MPC) is scheduled to meet from October 5 to 7 to decide on the benchmark repo rate. The SBI report said that given geopolitical tensions, crude oil price risks, and a reassessment of global risks, "it would be prudent for us to act preemptively rather than lag behind the curve."
Inflation is now rising rapidly. CPI inflation rose to 4.82 percent in August from 4.45 percent in July. A strong El Niño and below-normal rainfall in October could pose further risks to rabi crop yields. Rising crude oil prices, inflation, and rising global bond yields have reduced the RBI's scope to keep rates unchanged.
Another report by BNP Paribas India said India's macro-outlook has weakened in the past few weeks as Brent crude has risen above $100 a barrel and US 10-year Treasury yields have moved towards 5 percent. According to analysts at global brokerage Nomura, the RBI may limit interest rate hikes to 25-50 basis points in the current cycle, while the market is expecting more tightening.
He predicted an 80 percent chance of a limited rate hike, rather than a widespread tightening of more than 75 basis points. A basis point is a standard unit in finance and banking for measuring small changes in interest rates or yields. A basis point (bps) is a standard unit in finance and banking for measuring small changes in interest rates or yields.