According to an SBI research study called Ecowrap, the Reserve Bank of India (RBI) is projected to raise the repo rate by at least 50 basis points (bps) starting in June. The bank predicts a 25 basis point rate hike in each of June and August, for a total rate hike of 75 basis points over the cycle.
"With RBI prioritising inflation overgrowth, as mentioned by RBI Governor in post-policy news conference," the study said on Wednesday, "we now expect RBI to boost repo rate by at least 50 basis points commencing June." It went on to say that yields are likely to climb higher as they track yields in advanced nations and Asian rivals. According to the research, G-sec yields might reach 7.75 percent by September.
"We expect RBI will use unorthodox policy tools to keep G-sec yields contained at 7.5 percent," it said. Any extension of GST (goods and services tax) compensation beyond June 2022, as well as any additional borrowing to pay it, will be another topic to watch, the report read.
In terms of inflation, the study stated that CPI-based inflation increased to 6.95 percent on a year-over-year basis in March 2022, up from 6.07 percent in February 2022, owing primarily to food price inflation.
It was observed that inflation readings are now expected to remain above 7 percent through September. Inflation is expected to stay between 6.5 and 7 percent after September, according to report. "Taking into account the possibility of a sustained food price shock, our FY23 inflation prediction is now closer to 6.5 percent," it stated.
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