RBI MPC Policy: Experts expect another rate hike on cards between 25-40 basis points as inflation shows no signs of abatement

The Reserve Bank of India (RBI) is likely to increase the benchmark lending rate in quick succession in its forthcoming monetary policy review on Wednesday as inflation shows no signs of abatement and a hint of a rate hike had already been given by RBI Governor Shaktikanta Das, opined experts.

There are speculations that the central bank may go for at least 25 basis points (bps) hike over and above the 40 bps hike effected last month after an off-cycle Monetary Policy Committee (MPC) meeting. Experts are expecting more hikes in repo rate in the coming months.

Governor Das-headed MPC (Monetary Policy Committee) will meet for three days beginning Monday, June 6 to 8 2022. The decision taken during the meeting will be announced by the governor on Wednesday.

According to Umesh Revankar, Vice Chairman & MD, Shriram Transport Finance expects the RBI to hike interest rates by anywhere between 25-40 bps in the June policy meeting. No doubt inflation has risen in India, and it is largely attributable to the global geo-political environment, he added.

The GDP growth of 8.7 per cent in FY22 on the low base, still shows that domestic demand remains feeble and with higher inflation dampening the purchasing power, the regulator may not want to raise rates too aggressively, Revankar said in his note on RBI MPC policy expectations

“RBI is taking measures to bring down excess liquidity in the system to control the inflation, meanwhile the Government is also managing inflation by reducing tax on petroleum products and restricting the exports of essential commodities,” the expert added.

On expectation from the MPC, Madan Sabnavis, Chief Economist, Bank of Baroda, said the credit policy to be announced will be important from the point of view of not just rate action but also the RBI's thoughts on growth and inflation.

"The increase in repo rate can be taken as almost given but the quantum may not be more than 25-35 bps as the earlier minutes of the meeting held in May indicated that the MPC was not in favour of a large increase in repo rate at one shot," Sabnavis said.

On what he expects from the rate setting panel, Dhruv Agarwala, Group CEO, Housing.Com, PropTiger.Com & Makaan.Com, said the RBI is expected to increase the repo rate once again to contain inflation which is largely being driven by global factors such as the Ukraine war.

"At this juncture we can understand the compulsion of the RBI to raise interest rates. However, the hike should be gradual as it could impact the growth of the real estate sector which is a major driver of the economy," he said.

Rakesh Kaul, CEO, Clix Capital, said the June MPC meeting is certainly expected to see a rate hike, with only the quantum in question.

"Unfortunately, with a twin deficit- in both fiscal as well as current account-- persistent and rising inflation, as well as the Federal Reserve increasing rates and likely to continue tightening, the only way out for RBI is to raise the interest rates," he said.