RBI may increase the repo rate by 25 basis points, according to experts

The majority of financial industry professionals anticipate the Monetary Policy Committee (MPC) to opt for a moderate repo rate increase of 25 basis points during its policy review meeting this week. Monday marks the beginning of the MPC’s three-day deliberations, and February 8 marks the announcement of the result. In his most recent bimonthly monetary policy statement, RBI Governor Shaktikanta Das noted on December 7 that “core inflation is demonstrating stickiness.

While the year’s remaining months and Q1 (April–June) 2023–24 may see a decline in headline inflation, it is still anticipated that the rate will remain over the target. The MPC concluded that more, calibrated monetary policy action is necessary to maintain anchored inflation expectations, end core inflation persistence, and rein in second-round impacts.

Referring to the aforementioned comments, experts believe that MPC may implement one more rate hike this fiscal year to maintain inflation within the target range of 4% +/­ 2%. Some believe that MPC might press the pause button, though. They supported their argument by citing the most recent retail inflation and IIP statistics. The MPC would continue with one additional rate hike to lift the repo rate to 6.5 percent for this cycle before pausing, according to a research by the analysts at Bank of Baroda.

In a report, Kotak Securities stated, “We expect the RBI MPC to boost policy rate by 25 basis points to 6.5 percent, followed by a protracted wait and watch strategy, as it examines the lag time of monetary tightening on growth and inflation.” According to Pankaj Pathak, Fund Manager Fixed Income at Quantum AMC, inflation has significantly decreased over the past three months and is continuing to decline. Given these events, Pathak predicted that the MPC will decide to stop its cycle of rate increases in February.

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