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| Economists, market-watchers expect RBI to hike repo rate by 25-50 bps | | | Early Times Report
JAMMU, June 5: Amid the elevated inflation, crude price volatility and geo-political crisis, economists and market-watchers expect Reserve Bank of India (RBI) to hike repo rate in the range of 25-50 basis points (bps) next week.
The meeting of the monetary policy committee (MPC), also referred as rate-setting panel, is set to kick off on Monday and Governor Shaktikanta Das would make monetary policy statement on June 8.
Seeking to tame inflation, the Central bank had, in an off-cycle MPC meeting last month, raised repo rate by 40 basis points to 4.40 per cent. Governor Shaktikanta Das recently hinted that more rate hikes were in the pipeline, saying that expectations of increase in the repo rate was a 'no-brainer'.
Repo rate is the rate at which the banks borrow from the Central bank. Higher repo rate would make loans expensive for borrowers, adding to their EMI burden.
Apart from raising repo rate, the RBI had also increased cash reserve ratio (CRR) by 50 basis points to 4.5% of net demand and time liabilities (NDTL) effective from the fortnight beginning May 21, 2022. The move was aimed at curb excess flow of money in the economy and hence contain inflation. With commodity prices remaining high, the RBI is expected to take more measures to ensure overall price stability.
Suvodeep Rakshit, Senior economist at Kotak Institutional Equities said, "We expect the RBI to hike repo rate by 40 bps in the June policy meeting. However, we should be open for a rate hike between 35-50 bps hinging on how the MPC wants to reach the pre-pandemic repo rate of 5.15 per cent or around that mark by the end of the August policy."
He further said that RBI may hike the CRR in one of the upcoming policies, but will be contingent on how it sees the durable liquidity panning out over the next few months.
"We expect another 50 bps of CRR hike by end-FY2023. Along with the repo rate hike, the RBI will also revise its inflation estimates higher, possibly indicating inflation remaining close to seven per cent for most part of CY2022.
"We expect the RBI to continue focusing on taking inflation and signaling its intent to continue raising rate and normalising liquidity, while not entirely losing its on growth given the uneven nature of growth recovery," said Rakshit. An SBI report authored by its Group Chief Economic Adviser Soumya Kanti Ghosh expects the RBI to hike repo rate by 50 basis points and maintain accommodative stance, while focusing on withdrawal of accommodation.
The report stated that persistence of high inflation was forcing countervailing monetary policy action at a time when supporting the economic recovery should have been assigned priority.
During 2022 so far, more than 45 central banks across advanced economies and emerging market economies have raised policy interest rates and/or scaled back liquidity, with many Central banks hiking interest rates in back-to-back policies.
"Policy trade-offs are becoming increasingly complex going forward and tail risks, including stagflation, loom large in several countries," the report said.
In what seems a co-ordinated action, the government last month slashed excise duty on diesel and petrol to provide relief to people. It also calibrated duties on raw materials of steel to cool down prices of steel for the local industry. The move is expected to have calming effect on surging prices pushing retail inflation to 8-year high of 7.79 per cent in April.
On his expectations from June monetary policy, Umesh Revankar, Vice Chairman and MD, Shriram Transport Finance said, "Given that on one hand uncertainty around the Covid variants continue and growth is still uneven, inflationary expectations remain high and globally central banks are withdrawing easy monetary policy, against this backdrop, we expect the RBI to continue its path of policy normalisation, but rather slowly.
"As food inflation is likely to be benign, we expect the RBI to hike reverse repo rate first and then may be towards the second half of 2022 there could be a hike in repo rate as well."
Churchil Bhatt, Executive Vice President & Debt Investments, Kotak Mahindra Life Insurance Company expects the MPC to deliver a no-brainer policy rate hike of 25-40 bps. |
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