Repo Rates To Increase By RBI After A Long Time
The Reserve Bank of India (RBI) is now planning to increase its repo rates in June. It is sooner than expected, that rates will be hiked rapidly as the central bank has no choice but to act fluidly amid the high inflation rate, as shown by the poll conducted by Reuters.
Inflation At Its Peak
In March retail inflation rate bumped up by 7 per cent, and it far exceeded the upper target limit of 6 per cent set up by the Reserve Bank of India. And as a result of hiked energy prices in the global market, the inflation rate is expected to boost further.
In its April meeting, the Monetary Policy Committee kept its repo rates retained even after noticing the hiked inflation growth.
Eventually on March 17 after recording a month’s high inflation number, RBI is forced to think about increasing the repo rate sooner. Now as shown by the Reuters poll held between April 20-25, three of 46 economists expected RBI to raise the repo rate for the first time since June 2018. On the other 42 expect the rise of 25 basis points in Repo Rates to take the value to 4.25 per cent from 4.0. And only one expects a hike of 50 basis points.
Majority Expected The Rise In August
A few weeks ago, only 12 of 50 economists were expecting the rise in June, while the majority were expecting the first hike in August.
Rahul Bajoria, chief India economist at Barclays said, “Given the elevated inflation trajectory and a very realistic chance of the MPC facing its first official “failure” of the monetary policy framework, the RBI will shift its stance to “neutral” in June and embark on a short rate hiking cycle.”
This Is Just A Start, More Hikes Are Expected By RBI
There were expectations among experts that more hikes were coming in the following months which will result in 4.75 per cent and 5.25 per cent repo rates till the end of 2022 & 2023.
Kunal Kundu, India economist at Societe Generale said, “The more delay in acting, the greater the possibility you might end up being more aggressive…there are chances the RBI might have to eventually do a Fed.”