In view of retail inflation remaining above the comfort level of 6% and most global peers including US Federal Reserve continuing hawkish stance, the Reserve Bank of India (RBI) also may go in for a 25 bps hike in the bi-monthly monetary policy to be announced on April 6, opined experts.
The Monetary Policy Committee (MPC) of the RBI will be meeting for three days on April 3, 5 and 6 to take into account various domestic and global factors before coming out with the first bi-monthly monetary policy for fiscal 2023-24. The two key factors which the committee will deliberate intensely while firming up the next monetary policy are elevated retail inflation and the recent action taken by central banks of the developed nations especially the US Federal Reserve, European Central Bank and Bank of England.
The RBI has been raising benchmark rates since May 2022 to contain inflation which has been largely driven by external factors, especially the disruption of the global supply chain following the outbreak of the RussiaUkraine war. In its last policy meeting held in February, RBI had raised the policy rate or repo by 25 basis points to 6.50%. Having remained below six per cent for two months (November and December 2022), the retail inflation breached the comfort zone warranting action by the Reserve Bank.
The Consumer Price Index (CPI)-based inflation was 6.52% in January and 6.44% in February. "Given that CPI inflation has been 6.5% and 6.4% in the last two months and that liquidity is now near neutral, we may expect the RBI to raise rates once again by 25 bps and probably change stance to neutral to signal that this cycle is over," said Madan Sabnavis, Chief Economist, Bank of Baroda.
India Ratings and Research Chief Economist D K Pant too expects the central bank to raise policy rate by 25 bps (basis points). "This is likely to be last rate hike in present policy tightening cycle," he said, and added that inflation trajectory from here is going to decline due to impact of past policy rate hikes, softening of global commodity prices, and base effect.
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