Reserve Bank Can Hike Repo Rate To 6 Per Cent By December, Say Economists

A previous survey estimated the repo rate to reach 6 per cent by the end of June 2023

The Reserve Bank of India (RBI) may raise interest rates through December, taking the repurchase rate to 6 per cent by the end of this year, according to Economists in the Bloomberg survey.

After cumulative hikes of 140 basis points in three moves since May, economists noted that an another 35 basis-point hike in the September monetary policy review, and a quarter-percentage point increase in December, bringing the main interest rate to 6 per cent.

A previous survey estimated the repo rate to reach 6 per cent by the end of June 2023.

According to the report by Bloomberg, the rate hike expectations come despite economists predicting a moderation in inflation because of the economic slump in global commodities and easing supply chain bottlenecks.

Consumer prices are seen easing to 6.6 per cent from 6.76 per cent for the financial year ending March 2023, though still above the RBI's 2-6 per cent target range.

Wholesale prices are seen easing to 10.95 per cent, before moderating to low single digits in the next fiscal year through March 2024, the survey revealed.

Meanwhile, data due Wednesday is likely to show gross domestic product rising 15.3 per cent in the three months to June from a year ago, while gross value-added may rise 14 per cent. The growth, however, may moderate to the sub-6.5 per cent level from July-September quarter onward, weighed down by global concerns, the same survey showed.

“India is not immune to a US recession,” said Teresa John, economist at Nirmal Bang Equities. “Stable domestic fundamentals in terms of strong financial sector and non-financial sector balance sheets, high foreign exchange reserve and some amount of counter-cyclical fiscal policy ahead of elections in FY24 will limit the growth slowdown.”

On August 5, the six-member monetary policy committee (MPC) of the Reserve Bank of India (RBI) headed by Governor Shaktikanta Das on Friday announced to hike the policy rate by 50 basis points (bps) to 5.4 per cent to contain soaring inflation that has surged in the few months. This is be the third consecutive hike in the repo rate in the past three months.