By How Much Interest Rates May Increase? Know What Economists Say

Even as the Monetary Policy Committee of the Reserve Bank of India (RBI) meets next week, RBI Governor Shaktikanta Das has said the expectation of a rate hike is a good idea given the high inflation rate in the country. While he gave no idea of ​​how much the rate-setting panel could raise interest rates, experts say the key repo rate could rise by 25-50 basis points (bps).

The six-member Monetary Policy Committee (MPC) will meet from June 6-8 to decide on interest rates in the country. The policy decision will be announced on the last day of the meeting, 8 June.

Crisil Chief Economist DK Joshi expects the repo rate to rise 50 basis points in the upcoming MPC policy review, while Bank of Baroda Chief Economist Madan Sabnavis told that the MPC may decide to raise interest rates by 25-35 basis points.

Suvodeep Rakshit, senior economist at Kotak Institutional Equities, said: “We expect the RBI to raise the repo rate by 40 bps during the June policy meeting. However, we should be open to a rate hike in the 35-50 bps range. , depending on how the MPC wants to reach the pre-pandemic repo rate of 5.15 percent or around that mark by the end of the August policy.”

The repo rate (the rate at which the RBI lends money to commercial banks) is one of the external benchmarks imposed by the RBI, on the basis of which commercial banks determine the interest rate for various loans.

He added that the central bank is likely to raise the cash reserve ratio (CRR) in one of its upcoming policies, but will depend on how it sees sustainable liquidity unfold in the coming months. CRR is the percentage of cash that banks are required to hold in reserves relative to their total deposits.

“We expect another 50 bp of CRR increase by the end of FY2023. Along with the repo rate hike, the RBI will also revise its inflation estimates higher, suggesting inflation will remain close to 7 percent for most of CY2022. We expect the RBI to continue to focus on cushioning inflation and indicate its intention to continue raising interest rates and normalizing liquidity, while not losing its growth entirely given the uneven nature of the growth recovery,” said Rakshit.

Retail inflation in April was at an eight-year high of 7.79 percent, forcing the RBI to raise interest rates in May in an off-cycle monetary policy. At its April MPC meeting, the RBI revised its forecast for fiscal 2022-23 retail inflation upward to 5.7 percent, from the previously projected 4.5 percent.

Vinod Nair, head of research at Geojit Financial Services, said: “The late sell-off points to a lack of confidence in the domestic market, driven by concerns about the Central Bank’s policy. While in the global market, investors waited for the release of US jobs data. The RBI is expected to hike rates by 25-35 bps and the US Fed by 50 bps.”

India Ratings and Research (Ind-Ra) expects retail inflation to hit a nine-year average of 6.9 percent in FY23, and the RBI to raise key rates by at least 75 bps in the remainder of FY23. to increase.

“The increase could also be 100-125 bps, but this will depend on incoming data, policies by global central banks, the global geopolitical situation and the spillover effect on the Indian economy. The first rate hike by the RBI could be in the order of 50 bp in the June 2022 policy and another 25 bp in the October 2022 policy,” the rating agency said.

It also said the cash reserve ratio could also increase by 50 basis points to 5 percent by the end of FY23.

In a recent interview with CNBC-TV18, RBI Governor Shaktikanta Das said, “The expectation of a rate hike is a good idea. There will be some hike in repo rates, but by how much, I can’t say right now.”

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