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RBI Policy Review Live Updates: To check inflation, RBI is set to hike policy rates for the third time in a row

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RBI Policy Review Live Updates: The Reserve Bank of India on Friday may hike the policy repo rate by 25 to 50 basis points, the third hike since the start of the current fiscal, to ease inflationary pressures.

Sixteen of the 36 economists surveyed by Bloomberg saw the Reserve Bank of India’s six-member Monetary Policy Committee raise the buyback rate by half a point to 5.40%, which was last seen in August 2019. Fourteen of them predicted a 35-basis-point increase, five for quarter-point action and one 40 basis-point increase – with any of these moves seen as enough to pay back borrowing costs by the end of 2019 Gone.

With Federal Reserve officials indicating a standstill until they see evidence of a moderation in inflation, RBI watchers are closely following Governor Shaktikanta Das for any guidance on the pace and length of the monetary tightening cycle. Will monitor as he wants to ensure “soft landing” for the economy. The central bank has raised the key rate by 90 basis points since May, including a half-point hike in June.

Following the trend, the Bank of England on Thursday announced its biggest interest rate hike in 27 years as it predicted war in Ukraine would fuel inflation and propel Britain’s economy into a prolonged recession. .

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India’s retail inflation

Retail inflation in India moderated marginally to 7.01% on an annualized basis in the month of June, from 7.04% in May, due to lower crude and edible oil prices. Sequentially, headline inflation declined to 0.52% from 0.94% in May. Core inflation – excluding food and fuel segments – came down to 6% in June.

India’s services growth

Growth in India’s key services industry fell to a four-month low in July, as inflationary pressures and weak demand limited gains in business activity, according to a private survey. The S&P Global India Services Purchasing Managers Index declined to 55.5 in July from 59.2 in June. The index slipped from an 11-month high in June and hit its lowest level since March.

’50 bps repo rate hike’

Data analytics firm CareEdge expects the RBI to hike the policy interest rate by 100 basis points in the remainder of the financial year 2022-23. This will take the terminal rate down to 5.90 per cent by the end of FY23. “We expect a 50 bps hike in the repo rate in the upcoming policy and the terminal repo rate to 5.90 per cent by the end of the financial year,” said Rajni Sinha, Chief Economist, CareEdge.

hike path

Even as the central bank softens on rate hikes, economists see the peak policy rate, or what is commonly referred to as the terminal rate, to be reached earlier in the cycle than expected. Barclays now sees the policy rate rising to 5.50% by September, up from its earlier forecast of mid-2023. This would indicate that rates have moved into neutral territory, its India-based economist Rahul Bajoria said, referring to a level where rates can help check inflation without affecting economic growth. He put his projection for the terminal rate at 5.75%.

Have a look at some indicators

  • Food prices rose 14.39% in June from a year ago
  • Fuel and electricity prices hiked by 40.38 percent
  • Prices of manufactured goods increased by 9.19%

Global central banks raise rates

‘Rates close to 5.25%’

According to HDFC Bank Chief Economist Abhik Barua, the RBI is likely to pick up rates above “neutral” (which we believe is closer to 5.25 per cent) levels in this rate hike cycle before slowing down or relying on more data. Chances are.”

FM Sitharaman on economy and inflation

Earlier, Finance Minister Nirmala Sitharaman assured that the Indian economy is definitely much better than the situation prevailing in many other peer groups and many developed economies. On inflation, Sitharaman said the government and the central bank have taken adequate steps to keep inflation below 7% or ideally below 6%. RBI is mandated to target inflation in the band of 2-6%.

A look at India’s wholesale inflation

India’s wholesale inflation eased from a three-decade high in June amid some moderation in global commodity prices, including crude and edible oils, which are major imports for the country. Data released by the commerce ministry showed that wholesale prices had risen by 15.18% in June from a year ago.

Impact of RBI’s decision on stock markets

Kotak Cherry’s designated CEO Srikanth Subramaniam said, “Equity markets seem to have moved up by 35-50 bps and hence the corresponding rate hike may not come as a major setback, especially on the back of good earnings and economic momentum.” “

Fed may raise rates next month

Federal Reserve officials voiced their determination to rein in high inflation, though one noted that a half-cent increase in the US central bank’s key interest rate next month could be enough to move toward that goal. . “I start with the idea that doing 50 (basis points) in September would be a reasonable thing to do because I believe I’m seeing evidence in my contact conversations, and in the world’s comments I see that There are some bright spots for me,” San Francisco Fed Chair Mary Daly said in an interview with Reuters.

Bank of England launches biggest interest rate hike in 27 years

The Bank of England on Thursday announced its biggest interest rate hike in 27 years as it was predicted to spark war and inflation in Ukraine and propel Britain’s economy into a prolonged recession. The bank said a hike in natural gas prices could push consumer price inflation to 13.3% in October, from 9.4% in June.

‘MPC to raise benchmark repo rate by 50 bps’

“We expect RBI to hike MPC benchmark repo rate by 50 bps as CPI continues to rule above RBI’s threshold band. Comments on CPI trend may turn neutral/dovish as it looks to be in the fiscal year RBI’s forecast for 2023 is being followed. The key to watch will also be the guidance if there is no change in rates in the future,” said Lakshmi Iyer, chief investment officer (debt) and principal product, Kotak Mahindra Asset Management Company. Whether or not to increase from the beginning of this year, the key question for policymakers is how much to hike! The US Fed is running a sprint as far as the rate hike is concerned. Most other economies may not have the luxury of running a marathon,” Iyer said.

Markets looking for adequate liquidity

The markets will also seek an assurance from the RBI that there is adequate liquidity and that the central bank is ready to implement measures to address any shortfalls.

Raghuram Rajan on rupee concern

Former RBI governor Raghuram Rajan in an interview to Bloomberg on Wednesday said the central bank should keep its focus on prices and not worry about the rupee’s weakness, which is at “beautiful levels”. “If you focus on keeping inflation under control, the exchange rate finds a reasonable level.”

Rupee ride

While the rupee has hit several lows in recent months, falling below $80 in July, it has pulled back amid signs of a return to foreign fund inflows. Dovish signals from the monetary authority may not sit well with currency traders.

Monetary tightening cycle speed and length

With Federal Reserve officials indicating a standstill until they see evidence of a moderation in inflation, RBI watchers are closely following Governor Shaktikanta Das for any guidance on the pace and length of the monetary tightening cycle. Will monitor as he wants to ensure “soft landing” for the economy. The central bank has raised the key rate by 90 basis points since May, including a half-point hike in June.

RBI’s fight against inflation

While inflation has been above the RBI’s target of 6% since the beginning of the year, falling commodity prices may provide some scope for the central bank to suggest that the pressure is easing.

Change in attitude?

The Indian central bank-led rate setting panel is likely to raise the policy rate and perhaps even reverse the “accommodative” stance today.

Second hike in policy repo rate

In its second bi-monthly policy review in June, the RBI raised the policy repo rate by 50 basis points to 4.90 per cent.

First hike in policy repo rate

In its off-cycle monetary policy review in May, the RBI hiked the policy repo rate by 40 basis points or 0.40 per cent. This was the first hike in the policy repo rate in nearly two years. Repo rate is the interest rate at which RBI lends short-term money to banks.

third consecutive increase

If RBI hikes the policy repo rate today, it will be the third consecutive hike. RBI started tightening monetary policy at the beginning of the current financial year itself.

rate hike limit

Although a hike in policy interest rates is almost certain, analysts and economists have differing views on the rate hike. It varies between 25 basis points to 50 basis points.

RBI policy review today

The second bi-monthly meeting of RBI’s Monetary Policy Committee began on Wednesday. RBI Governor Shaktikanta Das is scheduled to announce the decisions of the Monetary Policy Committee today.

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