RBI Set To Hike Interest Rates By 35 Basis Points Next Week: Report

The Reserve Bank of India's rate-setting panel will go for a 0.35 per cent hike in the key repo rate at its meeting next week, an American brokerage said on Wednesday.

That hike will be accompanied by a change in the policy stance to "calibrated tightening", Bofa Securities said in a report published ahead of the Monetary Policy Committee (MPC) resolution, which is set to be announced on August 5.

The RBI has hiked the rate by a cumulative 0.90 per cent in two tightening moves in May and June, responding to the runaway headline inflation, which has consistently overshot the upper end of the target set for the central bank for many months.

Referring to policy actions since April, when RBI introduced the standing deposit facility, the brokerage said the central bank has effectively hiked rates by 1.30 per cent.

"In our base case, we now see the RBI MPC hike policy repo rate by 0.35 per cent, taking it to 5.25 per cent (higher than pre-pandemic level), with stance change to calibrated tightening from the withdrawal of accommodation," the report said.

The brokerage expects MPC to retain its FY23 Consumer Price Inflation (CPI) and real GDP growth forecasts at 6.7 per cent and 7.2 per cent, respectively.

Last week, RBI Governor Shaktikanta Das said that headline inflation, which came at 7.04 per cent for April, appears to have peaked.

The MPC can adopt a more aggressive measure and deliver a 0.50 per cent rate hike as it did in June, joining some developed market and regional central banks who have sent stronger signals.

On the other hand, a 0.25 per cent hike in rates can also not be ruled out, the brokerage said, explaining that MPC could acknowledge that inflation has peaked and there are downside risks to their estimates, which will be measured hikes from here on.