Hike rates

RBI to hike rates from early 2022, take more steps to normalize policy: analysts

MUMBAI (Reuters) – The Reserve Bank could reach the end of its tolerance for high inflation and will most likely raise interest rates in the first half of 2022, analysts said on Friday.
The central bank will also start to reverse its accommodative policies that led to easy liquidity conditions, they said.
The analysts’ view came even as inflation cooled to 5.6% in July, after two months of breaching the upper end of the RBI’s 6% tolerance band.
The central bank maintained the policy status quo and continued its accommodative policy to help revive GDP growth.
Finance Minister Nirmala Sitharaman said on Thursday that current conditions did not justify the withdrawal of accommodative measures.
“The RBI has been inflation tolerant and has remained accommodative to support growth given the hard hit to the economy. rating agency Crisil.
“If this pressure (on inflation) continues and systemically important central banks, especially the (US) Fed, start to normalize, the RBI will start to reverse. We expect the RBI to make a more definitive statement by the end of the fiscal year, and raise rates by 0.25%,” he added.
His counterpart Acuite said he expects policy normalization to start in a gradual manner with comfort on immunization, clarity on fiscal guidance and global rate setting and called the increase in the quantum variable first-step reverse auctions toward the same goal.
Then the central bank may consider raising the repo rate by 0.40% to reduce the difference between the repo rate and the repo rate to 0.25% by February 2022, she said, adding that the repo rate will remain unchanged at 4%.
In parallel, the vaccination campaign is expected to lead to herd immunity and thereafter the RBI will follow up with a 0.25% rate hike in April 2022, he said.
Analysts at Japanese brokerage firm Nomura said last week’s review showed signs of RBI policy pivoting towards normalization, pointing out that one of the monetary policy committee members also disagreed with the “accommodative stance” and raising the headline inflation target for FY22 to 5.7%. .
“The August policy meeting already bore early signs of a policy pivot via a calibrated liquidity normalization. We believe this will be followed by the phasing out of durable liquidity injectors, a 0.40% rise in reverse repo rate hikes (in the December quarter) and 0.75% cent of repo/reverse repo rate hikes in 2022,” he said.