RBI rate hike expected, terminal rate hike to be 6.5%: Experts

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IANS | 30 Sep, 2022
Elevated domestic inflation, and aggressive monetary policies of central banks of other countries has made the Reserve Bank of India's (RBI) Monetary Policy Committee (MPC) increase the repo rate by 50 basis points (bps) to 5.90 per cent, experts said.

They also said the MPC's future rate actions will be determined by the domestic inflation situation.

For a third consecutive time, the MPC has hiked the policy rate by 50 bps, taking the cumulative hike to 190 bps.

"The frontloading of the repo rate hike was expected, particularly in the light of a sharper rate hike path stated by the United States Fed and continued rate hikes by other major central banks," said credit rating agency Crisil Ltd.

"Further, domestic inflation is still above the RBI's upper tolerance limit and faces pressure from food and core inflation. Against this backdrop, we expect the MPC's future actions to be determined large ly by the trajectory of domestic inflation. Developments in the external sector and monetary policy actions of other central banks will also influence its decision on rates," it said.

With uncertainty prevailing at the global level, the RBI's objective of balancing growth and inflationary concerns ensuring financial stability is the right approach, opined Ambit Asset Management.

According to HDFC Bank, the RBI is expected to continue with its rate hikes in the upcoming policies taking rates up to 6.5 per cent (terminal rate) by the end of the fiscal year.

Terming the MPC's decision to hike the repo rate by 50bps as on expected lines, Bank of Baroda, in a report, said: "Liquidity is likely to be in deficit in H2 as well and the RBI would rely on fine tuning operations. Going forward we expect, inflation worries to continue from seasonal food price shock and demand conditions gathering momentum. We expect CPI to be in the range of 6.5-7 per cent."

"Our terminal repo forecast stands at 6.5 per cent, thus a rate hike of another 50-60bps in the current cycle seems feasible," it added.

According to Dhiraj Relli, MD &CEO, HDFC Securities, the MPC has lowered the GDP projection 7.2 per cent to 7 per cent for FY23.

"The next stage of response could be calibrated; we expect the terminal repo rate would be 6.25-6.40 per cent by FY23 end," Relli added.