HomeLatest NewsRBI to raise rates again, most economists expect 50 bps hike: report

RBI to raise rates again, most economists expect 50 bps hike: report

BENGALURU: The Reserve Bank of India is poised to raise interest rates again next week, with a slim majority of economists in a Reuters poll expecting a half-point hike and some expecting a lower hike of 35 basis points.
There was a broad consensus that RBI The September 30 meeting will see a rate hike, although there was disagreement over how far it would go if inflation accelerated to 7% and the rupee weakened.
The RBI lagged behind many of its global peers despite inflation staying above the top end of its target range of 2-6% throughout the year. It has raised rates in three separate steps since May, one of them unscheduled, by a total of 140 basis points and taking the key repo rate to 5.40%.
In the latest Reuters poll, economists were split five ways on what the RBI will do at its next meeting.
Just over half, 26 out of 51, said the RBI would go for a 50 basis point hike, taking the repo rate to 5.90%. Another 20 forecast an increase of 35 basis points. The remaining five respondents penciled in more modest increases of between 20 and 30 basis points.
While many revised their forecasts from the August vote, and no one expected the RBI to keep rates unchanged this time around, there was no immediate explanation why the central bank would opt for a smaller move now that most of its peers are hiking. .
The US Federal Reserve just delivered its third consecutive 75 basis point hike and shows no signs of slowing down, sending the dollar index to a fresh two-decade high and further downward pressure on the rupee.
“In India’s case, the twin deficits – current account and fiscal – in the wake of a strong dollar despite visible scars from the pandemic are likely to place a large premium on macro stability,” said Sajid Chinoy, chief India economist at JP. Morgan.
“But rising food prices in recent weeks and a hawkish Fed will prompt the RBI to move to 50 bps instead of 35 bps at its September meeting and force it to act again in December, taking the terminal rate closer to 6.25%, the post-global recession outcome we envisioned. 50 bps higher than.”
However, the poll showed that the RBI has taken a softer approach with rates, with no clear majority on where it will stop hiking but the medium-term forecast shows the repo rate at 6.00% per quarter until the end of 2023.
Meanwhile, the rupee, down about 9% this year, hit an all-time low of 80.86/dollar on Wednesday, lower than analysts had forecast in a separate Reuters poll.
A weak currency can make imports more expensive and keep inflation elevated for longer.
The survey showed inflation to remain at the top of the RBI’s tolerance range till the first quarter of 2023.
While GDP grew 13.5% in the last quarter from a year ago, making India the world’s fastest-growing major economy, expansion was forecast to halve to 6.2% this quarter and further slow to 4.4% in the next two quarters.
This could be one of the reasons why RBI is not following the same pace as other major central banks.
More than 60% of analysts, 23 out of 38 who answered an additional question, said a slowdown in economic growth will play a bigger role than usual in the RBI’s talks on interest rates by the end of this fiscal year.
Economists had expected average growth of 6.2% and 6.5% over the next two years, the survey showed.

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