RBI likely to start raising policy rate by up to 100 bps in 2022 amid rising inflation: Report

Reserve Bank of India (RBI) is likely to start raising the policy rate in the near future by up to 100 basis points (1 per cent) in 2022, the domestic brokerage firm Anand Rathi Share and Stock Brokers Limited said in a report on Thursday. This will be despite macroeconomic rates remaining volatile amid the rising inflation, it opined.

“We expect India, too, to start raising interest rates soon and the RBI may raise the policy rate by up to 100 bps in 2022. This can have negative impacts, at least in the short-term, on both the equity and bond markets,” the brokerage said in in retail inflation report expectations in 2022. 

The retail inflation during December 2021 hardened for the third successive month to 5.6 per cent, however, was lower than the consensus expectation, the government release said on Wednesday. 

While explaining the current macroeconomics view, the brokerage house also added, “Food inflation jumped to 4 per cent in December 2021, from 1.9 per cent in November 2021, while Core inflation, though elevated, softened slightly to 6 per cent in December 2021. 

The rise in global commodity, particularly crude oil, prices led to the increase in inflation, as it remains the highest for fuel followed by transport, the report said, adding further that the input and raw material cost pressures in categories such as footwear and clothing led to pass-throughs. 

Inflation in India is on the higher side compared to most peers, and has become key global concern, heightening inflationary expectations’, and leading to central bank actions, the brokerage added.  

According to report, almost 40 of the 100 countries have raised policy rates by a median of 150 bps, in the immediate neighbourhood, Pakistan and Sri Lanka have already raised their policy rates. 

Anand Rathi brokerage house expects that for the next 12 months inflation is likely to hover around 5 per cent and no major change in distribution would be seen. 

With inflation remaining within the comfort zone of RBI, there is no immediate concern for the MPC to continue with the accommodative stance though, it may continue with draining excess liquidity, Dr M Govinda Rao, Chief Economic Adviser at Brickwork Ratings said in a comment on Wednesday.