RBI rate hike: RBI will raise rates again in June as inflationary pressures increase

With the latest headline retail inflation hitting an 8-year high and tolerance levels for the fourth consecutive month, analysts expect the Reserve Bank of India (RBI) to raise rates again.

In a recent Reuters poll, analysts expected the RBI to raise rates at its June meeting. Reuters reports that a quarter of economists, 14 out of 53, expect the RBI to increase 35 basis points to 4.75%, while 20 expect a big move between 40-75 basis points, with ten predicting a 50 basis point increase.

Research firm Nomura said in a note to clients that it expects the RBI to increase the rate by 35 bps, and to increase by 200 bps by Q3 2023.

The RBI raised the benchmark lending rate by 40 bps in an unscheduled meeting on May 4, with the cash reserve ratio (CRR) increasing by 50 bps, indicating a sharp trend in its policy. This was the RBI’s first rate action since May 2020. However, the MPC has unanimously maintained its advantage.

“The RBI’s surprise intermittent rise was partly in anticipation of higher inflation in April, but we believe a substantial policy catch-up is still needed. We continue to expect further frontloaded rate increases: 35 bps in June, then 50 bps in August and 25 bps at subsequent meetings until April 2023. We expect 5.75% by December 2022 and 6.25% by April 2023. We hope so. H2 also expects CRR growth to be 100 bps in 2023, ‚ÄĚNomura wrote.

AnonymousReuters

Headline retail inflation rose to 7.8% year-on-year in April, the highest since May 2014. The hot inflation readings reflect broad-based growth across food, energy and core inflation.

Analysts note that as inflation continues to expand, about 70% of the CPI sub-component rises above the 4% target of the RBI.

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

“We really need to look at the second step … we can expect and gain momentum on the scale of policy normalization in June,” said Upasana Bharadwaj, senior economist.

Told Reuters. Bharadwaj has forecast an increase of 35 bps by the RBI.

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