Today's RBI MPC meeting begins: Repo rate increase anticipated following aggressive Fed push

  • Aug. 3, 2022, 1:35 p.m.

The three-day Monetary Policy Committee (MPC) meeting is scheduled to start on August 3 with the RBI governor, Shaktikanta Das, and other MPC members present. On August 5, the MPC's decision on the bimonthly monetary policy for FY23 will be made public. The largest issue at hand is inflation, which has reached a multi-year high and is pressuring major central banks around the world to raise interest rates.

With an unexpected 40-basis-point increase in the repo rate in May and another one of 50 basis points in June, RBI started the rate hike cycle this year. As of now, the central bank has increased the repo rate by 90 basis points, as opposed to the US Fed, which has increased its key rate by 225 basis points to combat persistent inflation.

The policy repo rate is currently 4.90 percent. As a result, the bank rate has been modified to 5.15 percent, the marginal standing facility rate has been raised to 4.65 percent, and the standing deposit facility rate has been raised to 4.65 percent.

The RBI forecast during the June 2022 policy that inflation would remain over 6 percent through the third quarter of FY23 and that it would only briefly fall below 6 percent in Q4. The RBI predicted inflation at 6.7 percent in 2022–2023, with Q1 at 7.5 percent, Q2 at 7.4 percent, Q3 at 6.2 percent, and Q4 at 5.8 percent, with risks evenly balanced. These projections were based on the assumption that the monsoon will be normal in 2022 and that the average price of crude oil (in the Indian basket) will be $105 per barrel.

The CPI movement determines how India's central bank's policies are implemented, and the country is on an inflation trajectory. Inflation is currently at 7.01 percent in June and has exceeded the RBI's 6 percent comfort level for six straight months.

The US Fed has already increased interest rates aggressively by 75 basis points as part of its most recent strategy to control inflation. The rate is anticipated to increase by RBI for the third time in a row. Traders currently estimate that there is a 44 percent likelihood that the Fed will increase interest rates by another 75 basis points at its September meeting. According to experts, the RBI will raise rates by 25–50 basis points in this upcoming policy.

The primary concern for policymakers now, as opposed to whether to hike rates or not earlier this year, is how much to hike, according to Lakshmi Iyer, Chief Investment Officer (Debt) and Head of Products, Kotak Mahindra Asset Management Company.

"We expect the RBI MPC to hike the benchmark repo rate by 50bps as CPI continues to rule above RBI's threshold band. Commentary may be neutral or dovish as the CPI trend seems to be following RBI's forecast for FY 2023. The key to watching also would be the guidance if any in the future course of rate moves, "she said.

Author : Rajdhani Delhi Representative

Rajdhani delhi representative

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