50 bps rate hike more likely now

The US Fed delivered 3rd consecutive rate hike after it raised the rates by 75bps to take the target range to 3-3.25%. The central banks of the UK and the EU have also gone for rate hikes to tame inflation

Mumbai: The Reserve Bank's rate-setting Panel will start its 3-day deliberations on Wednesday amid expectations of yet another rate hike of 50 basis points to check high inflation, in line with similar actions taken by other major central banks, including the US Fed.

Based on the recommendations of the Monetary Policy Committee (MPC), the RBI had effected 50 basis points increase in repo rate each in June and August after raising the short-term lending rate by 40 basis points in an off-cycle decision in May.

The MPC, headed by RBI Governor Shaktikanta Das, is scheduled to meet during September 28-30. The decision will be announced on Friday (September 30). The RBI, which has since May raised the repo rate by 140 basis points (bps), may yet again go for a 50-bps increase, which will take the key rate to a three-year high of 5.9 per cent, say experts. The present rate is 5.4 per cent. The consumer price index (CPI) based on retail inflation, which had started showing signs of moderation in May, has again firmed up to 7 per cent in August.

The RBI takes into account retail inflation while framing its bi-monthly monetary policy. The US Fed delivered the third consecutive rate hike after it raised the rates by 75 bps to take the target range to 3-3.25 per cent. The central banks of the UK and the EU have also gone for rate hikes to tame inflation. In a report, Bank of Baroda said the monetary policy this time will be more closely watched, given the recent developments in the forex market following the Fed raising rates last week.

The RBI's view on all issues will provide guidance to the market on repo rate, stance, growth and inflation projections, rupee, liquidity and global view. "In the upcoming credit policy of RBI, which is scheduled on 30 September 2022, we expect MPC to raise the repo rate by another 50 bps. We expect rates to increase up till 6-6.25 per cent," the report said.