Moody's predicts another 60-80 bps hike in repo rate this year

NEW DELHI:  A day after the Reserve Bank of India boosted key lending rates, or repo rates, by 50 basis points to 4.9 percent, now Moody's Analytics, a global financial services firm, indicated the central bank could raise them by another 60 to 80 basis points through the rest of the year.

Moody's,  however, maintained that any rate hikes would have to be carefully calibrated to satisfy the central bank's increasingly tough goals of boosting growth and keeping inflation under control. Moody's noted in a study that the most recent rate hike of 50 basis points was slightly higher than its projections of a 40-basis-point boost.

Wednesday's repo rate hike came after a surprise off-cycle rate hike of 40 basis points in May, which ended a pandemic-induced interest rate standstill and was the first since August 2018.

"Higher input costs owing to industry-specific shortages, trade restrictions as a result of Russia's invasion of Ukraine, and a domestic heat wave have driven up consumer prices," the report said.

The report said, while domestic demand has recovered some traction and the economy has remained resilient in the face of these headwinds, inflation pressures have become more broad-based, and upside inflation risks have "materialised earlier than anticipated," citing RBI.

 

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