Hike rates

RBI rate hike: RBI to hike rates again in June as inflationary pressures mount

As the latest headline retail inflation hit an 8-year high and above the tolerance limit for the fourth consecutive month, analysts expect the Reserve Bank of India (RBI) raises interest rates again.

In a recent Reuters poll, analysts expected RBI to raise rates at its June meeting. Reuters said more than a quarter of economists, 14 out of 53, expected the RBI to rise 35 basis points to 4.75%, while 20 expected a bigger move ranging from 40 at 75 basis points, including ten that forecast a 50 basis point hike.

Research firm Nomura, in a note to clients, said it expects the RBI to hike rates by 35 basis points and a cumulative hike of 200 basis points by Q3 2023 .

In an unscheduled meeting on May 4, the RBI raised benchmark lending rates by 40 basis points, along with a 50 basis point hike in the cash reserve ratio (CRR), signaling a hawkish tilt of his policy. This was RBI’s first rate action since May 2020. However, the MPC continued its dovish stance, unanimously.

“The RBI’s surprise rise between meetings was partly due to high inflation expectations in April, but we believe that substantial policy catch-up is still needed. We continue to expect further rises in forward rates: 35 bps in June, followed by 50 bps in August and 25 bps in subsequent meetings through April 2023. also expect 100 bps of CRR hikes in H2 2023,” Nomura wrote .

Reuters

Headline retail inflation hit 7.8% on an annual basis in April, the highest level since May 2014. The rise in inflation reflected a general rise in food, fuel and oil. underlying inflation.

Analysts note that inflation has continued to widen, with almost 70% of the CPI sub-components exceeding the RBI’s 4% target.

Analysts also expect the central bank to raise its inflation projection for the current fiscal year.

“We really need to see the second action … in June to really understand exactly how much policy normalization we can expect and the pace as well,” Upasna Bhardwaj, senior economist at

told Reuters. Bhardwaj predicted a 35 basis point hike by the RBI.