MUMBAI: The Reserve Bank of India (RBI) may increase its key interest rates for the third consecutive time by 25-35 basis points (0.25 to 0.30 per cent) to check high retail inflation, experts said.
The central bank's rate-setting panel -- Monetary Policy Committee -- will meet on August 3 for three days to deliberate on the prevailing economic situation and announce its bi-monthly review on Friday.
With retail inflation ruling above 6 per cent for six months, the RBI had raised the short-term borrowing rate (repo) twice -- by 40 basis points in May and 50 basis points in June.
The existing repo rate of 4.9 per cent is still below the pre-Covid level of 5.15 per cent. The central bank sharply reduced the benchmark rate in 2020 to tide over the crisis created by the pandemic outbreak.
Experts are of the view that the Reserve Bank of India (RBI) would raise the benchmark rate to at least the pre-pandemic level this week and even further in later months.
“We now expect the RBI MPC to raise the policy repo rate by 35 bps on August 5 and change stance to calibrated tightening,” BofA Global Research report said.
The possibility of an aggressive 50 bps and a measured 25 bps hike cannot be ruled out either, it added.
The government has tasked the Reserve Bank to ensure consumer price index-based inflation remains at 4 per cent with a margin of two per cent on either side.
In a report, Radhika Rao, Executive Director and Senior Economist at DBS Group Research, said the RBI monetary policy committee is expected to stay focused on price stability over the next two quarters.
Factoring in peak inflation in the July-September quarter, “we now expect a 35 bps hike in August, followed by three 25 bps for the terminal rate to level off at 6 per cent by end-FY23”, she opined.
The retail inflation based on Consumer Price Index (CPI), which RBI factors in while arriving at its monetary policy, is above 6 per cent since January 2022. It was 7.01 per cent in June....