In an effort to control stubborn inflation, the Reserve Bank of India (RBI) may follow the lead of its international counterparts, notably the US Federal Reserve, and raise interest rates for the fourth consecutive day on Friday.
Experts predict that the RBI, which has increased the short-term loan rate (repo) 140 basis points (bps) since May, will likely seek another 50-bps hike to bring it to a three-year high of 5.9%.
After beginning to moderate in May, consumer price index (CPI)-based retail inflation has once more firmed up to 7% in August. When establishing its bimonthly monetary policy, the RBI takes retail inflation into consideration.
On Wednesday, the Monetary Policy Committee (MPC), which is overseen by the RBI Governor, will begin its three days of discussions. The rate-setting panel’s decision would be made public on Friday (September 30).
The government has given the RBI the responsibility of ensuring that retail inflation stays at 4% with a margin of 2% on each side.
In spite of the persistent economic recovery and strong credit growth, according to Dhruv Agarwala, Group CEO of Housing.com, controlling inflation would continue to be the RBI’s primary priority.
According to Bank of Baroda Chief Economist Madan Sabnavis, India’s inflation rate, which is now at 7%, is unlikely to go down anytime soon. “This means that a rate hike is given. The quantum is what the market would be interested in. While a hike of 25-35 bps would have signaled that the RBI is confident that the worst of inflation is over, the recent developments in the forex market could prompt a higher quantum of 50 bps to stay on track with other markets so as to retain investor interest,” he said.