RBI likely to go for another rate hike to tame inflation: Experts

“RBI has already raised repo rates by 250 bps. There is no overheating in the economy despite resilient growth,” Srikanth Subramanian, CEO at Kotak Cherry.

He added, “RBI may decide to take a 25 bps hike in policy rates in the upcoming policy meeting and then take a pause. Over the next few months’ time, we believe there will be more clarity of direction of US Fed, and impact of already done rate hikes on inflation and growth.”

Mandar Pitale, Head – Treasury, SBM Bank India, said, “Domestic CPI inflation has remained elevated above 6 per cent for the last 2 months. Additionally, the upside risks to food inflation exist due to unseasonal rains and in case there is El Nino led disruptions. Therefore, at this juncture, it becomes important for RBI to reinforce its commitment towards taming inflation. The expectation of the Federal Reserve continuing its rate hike cycle to control inflation may support the RBI’s decision to raise the repo rate in the April meeting before pressing the pause button.”

The repo rate is the key rate at which the central bank lends money to banks. RBI’s repo rate is currently at 6.50 per cent, the highest level since February 2019. If the RBI decides to go for another 25 bps rate hike, the repo rate will be at the highest level since April 2016.

Pitale added, “We expect the RBI to hike the repo rate by another 25 bps during the MPC meeting. The present macroeconomic environment is witnessing weaker than expected global growth trend for an extended period, supply-side shocks to global commodity/domestic food prices and progressive tightening of financial conditions. This may lead to weaker business sentiments in the longer run.”

Meanwhile, moneyHOP founder and CEO Mayank Goyal said, “We’ve seen positive effects of the increased interest rate vis a vis the decrease in inflation since September last year, we anticipate the government to further increase the rate by 25 to 35 basis points, which should eventually bring the inflation down to around 3 to 4% which might be an acceptable range for the foreseeable, short term future.”

“The recent cut announcement of oil production by OPEC, fuel price in India continues to put pressure on inflation. Also, the untimely rains in certain parts of the county impacting the crops, we continue to believe that the next policy will hike rates by 25 bps,” said Sharad Chandra Shukla, Director at Mehta Equities Ltd.

Global banking crisis

The collapse of three US Banks, Silicon Valley Bank, Signature Bank and First Republic Bank, and Switzerland’s Credit Suisse has triggered a global banking crisis, which is the biggest crisis since the global financial crisis of 2007-2008. However, experts expect that the ongoing banking crisis will not stop the Reserve Bank of India to go for another hike in the repo rate.

“It’s been a very busy FY23 for global central banks. On one hand, they had to take an aggressive monetary policy stance by hiking interest rates and withdrawing liquidity from the system, and on the other hand, they had to take steps to protect the banking sector from fears of contagion risk spreading across the financial system,” said Subramanian.

“Even after the recent bank episodes (SVB etc.) the European Central Bank, US Fed, Bank of England and Swiss National Bank have increased the policy rates in their jurisdiction,” SBM Bank’s Pitale said.

He said, “Given the current backdrop of high inflation and mixed signal on growth, RBI will need to walk a tight rope to achieve a balance.”