NEW DELHI: As the Monetary Policy Committee (MPC) of the RBI meets for three days from today, there’s largely a sense prevailing that with inflation fears slowly coming off, the same might be visible in a less than aggressive rate hike by the central bank. Many experts now believe that the RBI is more likely to go for a 25-35 basis points (BPS) increase in policy rate than a 50 bps hike.
“We do expect the RBI to go for a 25 bps hike in repo rate this time. This will bring it to the pre-Covid level of 5.15%. A 25 bps hike will indicate that inflation has peaked and though high will not go up significantly,” says Madan Sabnavis, chief economist of Bank of Baroda. He added that any aggressive move like hiking the rate by 50 bps will indicate that the inflation peak has not yet been achieved and hence that can send a different signal to the market.
Retail inflation in June eased to 7.01% from 7.79% in April this year. Some experts believe that the effect of the recent drop in commodity prices like Copper, steel and aluminium could be seen in July inflation numbers. Siddhartha Sanyal, Chief Economist & Head of Research, Bandhan Bank, told TNIE that they expect a 35-40 bps rate hike which will make it 125 basis points increase in a span of three months, the fastest rate hike in recent years.
Sanyal believes that since the effect of monetary policy comes with a lag, it is important to factor in the inflation in the second half of the year. He feels the RBI’s inflation projection of 6.7% in the second half of 2022-23 is less likely to see any upward surprises.
However, some analysts feel that despite falling inflation, the RBI would have to keep in sync with global monetary policy while reacting to domestic macroeconomic situations. The US Fed has so far increased policy rates 225 basis points in 2022, and analysts feel it has yet not finished. These analysts feel a 50 bps hike by RBI could be a possibility.