RBI likely to hike policy rates by 25 bps due to inflation

The Reserve Bank of India is likely to hike policy rates by 25 basis points (bps) in its current monetary policy committee (MPC) meeting to tame growing inflation levels. The RBI MPC met for three days on April 3, 5 and 6 to discuss domestic and global factors before announcing the first bi-monthly monetary policy for 2023-24. 

The committee headed by RBI Governor Shaktikanta Das is likely to have deliberated on high retail inflation and recent action by central banks such as the US Federal Reserve, the European Central Bank, and the Bank of England. The Reserve Bank has already raised its policy rates by 250 bps since May last year to tackle inflation. 

Despite this, inflation levels have remained above the RBI’s 6 per cent comfort zone for most of the time barring November 2022 and December 2022. The consumer price index-based inflation (CPI) stood 6.44 per cent in February versus 6.52 per cent in January. 

"Given that CPI inflation has been 6.5% and 6.4% in the last two months and that liquidity is now near neutral, we may expect the RBI to raise rates once again by 25 bps and probably change stance to neutral to signal that this cycle is over," Madan Sabnavis, Chief Economist, Bank of Baroda had said recently.

Unseasonal rains are likely to impact food prices adversely and OPEC and its allies’ decision to slash output also shored up oil prices. Core inflation, minus volatile food and energy components, also likely stayed in the range of 6.05 per cent to 6.12 per cent. 

"The policy space to focus on inflation is lent by domestic growth conditions holding-up, supported by urban consumption and services sector recovery," Gaura Sen Gupta, an economist with IDFC FIRST Bank, was quoted as saying by news agency Reuters.

The central bank will hold 6 MPC meetings in FY 2023-24. Centre has tasked the RBI to ensure retail inflation remains at 4 per cent with a margin of 2 per cent on either side. 

(With inputs from agencies)

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