Rate hikes will continue until repo reaches 5.5%

Mumbai: Even as RBI has increased repo rate by 50 basis points to 4.9 per cent on Wedsday morning, experts believe that more such rate hikes were in the offing. They are of the view that repo rate hikes will keep on going northwards until it reaches 5.5 per cent.

Talking to Bizz Buzz, Aditi Nayar, chief economist, ICRA said: "In our view, the MPC will hike rates further until the repo rate reaches 5.5 per cent, to keep inflationary expectations from unhinging, before pausing to assess the impact on growth."

While further rate hikes remain clearly on the table, with the reference to the revised repo rate of 4.9 per cents remaining below the pre-pandemic level, the comment on the orderly completion of the government borrowing programme has served to cool the 10-year G-sec yield, she said.

We foresee further repo hikes of 35 bps and 25 bps, respectively, in the next two policies. However, the upmarch in the yields will now be somewhat shallower than our earlier expectations, she added.

"Hard lending from an accommodative policy stance is disappointing as it will have an impact on costs of doing business and production possibilities," said Pradeep Multani, president, PHDCCI, adding that "We had expected the repo rate to be up by 20-30 basis points only. However, a hike of 50 basis points in repo rate is too." much. .

Though RBI's decision to raise the repo rate by 50 bps to 4.9 per cent is in synchrony with its efforts to tackle persistently heightened inflation, it will impact India's economic growth due to dampened demand scenario and discouraged consumer and business sentiments. Any increase in the interest rate increases the costs of doing business, which are already high vis-a-vis high raw material costs amid geo-political distress, he said.

Dr Satya Prakash Sharma, chief economist, PHDCCI, said that 'we need to strike a balance between controlling inflation and our growth target." However, a section of experts believes that RBI policy is on the expected lines.

"Even after a hike of 50 basis points, the repo rate is below the pre-pandemic repo rate of 5.15 per cent," IBA Chairman AK Goel said.

Considering the fact that inflation is hardening, it is essential to control inflation at the desired level. Taking into consideration all the risk factors on price levels, all members of the Monetary Policy unanimously voted to remain focused on withdrawal of accommodation to ensure that inflation remains within the target going forward, while supporting growth, he added.

Zarin Daruwala, Cluster CEO, India and South Asia markets (Bangladesh, Nepal and Sri Lanka), Standard Chartered Bank, said, "With the latest hike, the operating rate has moved up by 155 bps to 4.9 per cents over the past few months. While the MPC has prioritised policy and withdrawal of accommodation, its steps are likely to be measured as the domestic economy recovers. It was heartening to note that capacity utilisation has improved to 74.5 per cent and that GDP growth has been retained at 7.2 per cent."