The RBI MPC meeting has begun; expect another rate hike

4 Aug 2022 , 12:09 PM

In unison with the ECB and US Fed’s rate hikes, the Reserve Bank of India’s Monetary Policy Committee (MPC) is anticipated to raise the main interest rates by 35 to 50 basis points (bps).

Since April 2022, the RBI has effectively hiked rates by 130 basis points, favouring inflation over GDP. The RBI is anticipated to increase the repo rate by another 100 basis points in the remaining months of FY23, according to Rajani Sinha, Chief Economist at CareEdge.

Currently, 4.90 percent is the policy repo rate. The Bank Rate, marginal standing facility rate, and standing deposit facility rate have all been changed to 4.65 percent, 5.15 percent, and 4.65 percent, respectively. As part of its most recent plan to combat inflation, the US Fed already aggressively hiked interest rates by 75 basis points. For the third time in a row, RBI expects the rate to rise.

At the moment, traders predict that there is a 44% chance that the Fed will raise interest rates by another 75 basis points in September. The RBI will increase rates in its forthcoming policy by 35 to 50 basis points, according to analysts.

In research released before the Monetary Policy Committee (MPC) decision, which is scheduled to be revealed on August 5, Bank of America Securities stated that the increase will be accompanied by a shift in the policy stance to “calibrated tightening.”

Analysts anticipate the MPC will cut its inflation prediction for FY23 by 6.7% as a result of the consumer price inflation (CPI) rate falling to 7.01% in June. Inflation looks to have peaked, according to RBI governor Shaktikanta Das, who also cautioned that commodity prices remain high despite the trend’s apparent easing in June.

Market indications are indicating that the rate-hiking cycle is coming to an end. In a recent report, analysts at the rating agency Crisil said that since mid-June, the overnight indexed swap (OIS) curve has been “bull-flattening.” The statement stated, “It indicates the market is wagering the Reserve Bank of India (RBI) might lower rates faster than anticipated after it is finished with rate rises.