MUMBAI: The RBI could raise the reverse repo rate — at which it borrows from banks — by 25 bps on February 10, feel Crisil and Bank Of Baroda chief economists, to rein in rising inflationary expectations amid a larger than expected government borrowing programme in FY23.
SBI group chief economist Soumya Kanti Ghosh also believes the time is “appropriate” for a 20 bps hike in reverse repo, but feels that could happen outside the MPC. With crude hovering at $90 a barrel and the government’s gross borrowing budgeted at Rs 14.3 lakh crore in FY23 against $12 -13 lakh crore penciled by the market, the RBI has a challenging task to rein in rising inflation expectations even as it nurtures the nascent economic recovery through the government’s capex thrust.
While raising the reverse repo rate from 3.35%, it will keep the key policy repo rate — at which it lends to banks — unchanged at 4%, according to economists and analysts.
Under the variable reverse repo auctions it conducts to suck out surplus liquidity from the banking system, the cut-off rate has already moved closer to the repo rate of 4%, indicating the rates at which banks borrow from each other are also moving up.
While keeping the repo rate and the cash reserve ratio unchanged, a hike in the reverse repo rate will signal that the policy normalisation process has begun. “RBI is expected to change its position on growth and put emphasis on government borrowing and inflation as the main challenges going ahead,” said Madan Sabnavis, chief economist , Bank of Baroda.