In the next scheduled meeting RBI is expected to raise repo rates again, and many economists according to a Reuters poll predicted a hike of 50 bps and a small proportion thinks about 30 bps.
RBI To Hike Repo Rates In September 2022 Meeting
There is a high probability that RBI will go for another repo rate hike this year at September 31st meet. However, it’s not clear how much higher the key lending rates will go with surging inflation and the rupee weakening against the dollar.
RBI has till now played a very controlled game in terms of a repo rate hike, despite the inflation rate being at the top end of the target range which is 2-6% and now it’s closer than ever to 7%. So far, we have seen a total repo rate hike of 140 bps in three moves, that too one of them in an unscheduled meet, which took the repo rates to 5.40%.
In the latest Reuters poll, economists show five different conclusions about the upcoming RBI hike.
26 out of 51 polls were in favour of a 50 basis point hike which can take the lending rates to 5.90%. Another 20 predicts a further increase in repo rates by 35 bps. The remaining tried to convince a 20–30 bps hike.
One thing is sure, no one predicts or expects RBI to leave the rates unchanged. Also, there is no reason for RBI to go for a small change while its peers are taking serious measures.
The US Federal Reserve recently made a big move with a straight 75 basis point hike with no signs of a slowdown.
“In India’s case, bulging twin deficits – current account and fiscal – in the wake of a stronger dollar are likely to place a greater premium on macro stability, despite the visible scarring from the pandemic”, said Sajjid Chinoy, Chief Economist, JP Morgan.
“But a food price surge in recent weeks and a hawkish Fed will induce the RBI to move 50 bps, instead of 35 bps at the September meeting, and be forced to act again in December taking the terminal rate closer to 6.25%, 50 bps higher than the global-recession outcome that we had envisaged”, added.