RBI MPC Meet: Three-Day Monetary Policy Meeting Begins Today. Hike In Key Interest Rates Expected

RBI MPC Meet: RBI is expected to increase the repo rate once again to contain inflation which is largely being driven by global factors such as the Ukraine war.

New Delhi: Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) meeting led by governor Shaktikanta Das will begin today and will be held for the next three days. The meeting will end on June 8 with the announcement of the MPC’s decisions regarding key interest rates, CRR and policy amendments to be made by the RBI governor.

Governor Shaktikanta Das recently hinted at the rate hike during a television interview.

"Expectation of rate hike is a no-brainer, there will be some increase in the repo rates, but by how much I will not be able to tell now but to say that 5.15 may not be very accurate", said Shaktikanta Das as per news agency PTI.

Rate Hike

Led by the inflationary pressure, RBI may raise the policy repo rate by 40 basis points and hike it further by 0.35 per cent in August, taking it to the pre-pandemic level of 5.15 per cent, according to economists and financial market analysts.

In a report, BofA Securities said it expects RBI MPC to raise the repo rate by 40 bps in June and 35 bps in August.

"We see the RBI MPC revise up their inflation forecast, retain growth estimate and stance focusing on withdrawal of accommodation," it added.

Madan Sabnavis, Chief Economist, Bank of Baroda, said: "The increase in repo rate can be taken as almost given but the quantum may not be more than 25-35 bps as the earlier minutes of the meeting held in May indicated that the MPC was not in favour of a large increase in repo rate at one shot.”

On expectations of the rate hike, Dhruv Agarwala, Group CEO, Housing.com, PropTiger.com & Makaan.com, said: "At this juncture, we can understand the compulsion of the RBI to raise interest rates. However, the hike should be gradual as it could impact the growth of the real estate sector which is a major driver of the economy.”

Rakesh Kaul, the CEO, Clix Capital, also echoed similar expectations, saying "Unfortunately, with a twin deficit –- in both fiscal as well as current account-- persistent and rising inflation, as well as the Federal Reserve, increasing rates and likely to continue tightening, the only way out for RBI is to raise the interest rates".

What’s Triggering Rate Hike?

The RBI is expected to increase the repo rate again to contain inflation, which is largely driven by global factors such as the Ukraine war.  The retail inflation, which RBI considers for deciding on rates had surged for a seventh straight month to an 8-year high of 7.79 per cent in April, mainly on account of surging commodity prices, including fuel, amid the Russia-Ukraine conflict.

The wholesale price-based inflation has remained in double digits for 13 months and touched a record high of 15.08 per cent in April.

The government has taken several steps, including a duty cut on motor fuel, a reduction in import duty on certain edible oils, and banning the export of wheat, in a bid to arrest the inflation.

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.

(With PTI inputs)