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RBI MPC meet starts today: Repo rate hike on the cards after Fed’s aggressive push | Mint – Mint

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.

Also Read: RBI monetary policy: How much rate hike is on the cards

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 to 4.65 percent, and the standing deposit facility rate to 4.65 percent.

Also Read: For banks, rising interest rates come with a flipside

The RBI forecast during the June 2022 policy that inflation would remain over 6 percent through the third quarter of FY23 and 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.

Also Read: RBI MPC meeting to US job data: 5 factors that may impact stock market this week

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

The US Fed 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.

Also Read: 3 major banks hikes MCLR ahead of RBI bi-monthly monetary policy meet

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 Products, Kotak Mahindra Asset Management Company.

“We expect RBI MPC to hike the benchmark repo rate by 50bps as CPI continues to rule above RBIs threshold band. Commentary may be neutral/dovish as CPI trend seems to be following RBIs forecast for FY 2023. Key to watch also would be the guidance if any in the future course of rate moves,” she said.

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