RBI MPC meet: Economists and analysts expect a rate hike of 50 bps

The Reserve Bank of India, that will announce the outcome of the Monetary Policy Committee meeting today, is likely to announce a further round of rate hikes. In fact, a significant number of analysts and economists believe that the apex bank is likely to announce a hike in repo rate to the tune of 50 bps.

The central bank has increased the repo rate three times since May to the current 5.40 per cent. If it goes for another rate hike of 50 bps, the repo rate will reach 5.90 per cent.

The rate hike is decided keeping in mind retail inflation, which has gone up from 6.71 per cent in July to 7 per cent in August. To put it in perspective, the inflation target for the MPC is 4 per cent with an upper tolerance band of 6 per cent.

On top of rising inflation, the US Fed rates have gone up from 1 per cent in May to a high of 3.25 per cent in just five months. The target is now 4 per cent in December 2022. The US is aiming to bring retail inflation to a targeted 2 per cent – which is currently at 8 per cent.

Factoring the above points, economists predict a 50 bps rate hike in today’s announcements.

A poll conducted by Business Today showed that a majority of respondents believe that the RBI will go for a 50 bps rate hike. More than half of the respondents in various platforms voted in favour of a likely 50 bps rate hike – Twitter: 72.5 per cent, Linkedin: 57 per cent, Youtube: 58 per cent, Instagram: 29 per cent. Others expect it to increase by 25-35 bps with a few expecting no hike at all.

Group chief economist at SBI, Soumya Kanti Ghosh, said that a half-percentage point hike in repo rate looks “imminent”, but said that he expects a 35 bps rate hike in the December policy announcements.

Nirmal Jain, Founder & Chairman, IIFL, said that the RBI might go for a 50-bps increase following global cues.

Chief economist at UBS Securities India, Tanvee Gupta-Jain, also predicted a 50 bps rate hike. Jain blamed a large current account deficit, elevated Consumer Price Index (CPI) and a stretched fiscal position for the hikes.

Rahul Bajoria, chief economist at Barclays India, said, "We now expect 50 bps of further rate hikes in 2023 (75 bps previously) which would take the repo rate to 6.75 per cent by April 2023.”

Vivek Kumar, senior economist with QuantEco Research, believes that a 50 basis points rate increase on Friday is justified irrespective of the Fed decision.

Meanwhile, a slim majority of economists in a Reuters poll said that they expect a half-point hike, while others expected a 35 basis point rise. Over half – 26 of 51 – economists said the RBI would go for a 50 basis point hike, taking the repo rate to 5.90 per cent, while another 20 predicted a 35 basis points increase. The remaining five respondents expected a hike ranging from 20 to 30 basis points. All the respondents believe that the RBI will announce a rate hike today.

With an increase in repo rate, home, loan, personal, auto and other loans will get costlier.

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Also read: RBI could increase the repo rate up to 50 bps: BT Poll