The Reserve Bank of India (RBI) may take cues from its global counterparts, including the US Federal Reserve, to raise interest rate for the fourth time in a row on Friday to tame stubborn inflation.

The RBI, which has since May raised the short-term lending rate (repo) by 140 basis points (bps), may again go for a 50-bps increase to take it to a three-year high of 5.9 percent, say experts. 

The central bank had raised the repo rate by 40 bps in May and 50 bps each in June and August. The present rate is 5.4 percent.

The consumer price index (CPI) based retail inflation, which had started showing signs of moderation since May, has again firmed up to 7 percent in August. The RBI takes into account retail inflation while framing its bi-monthly monetary policy. The RBI Governor-headed Monetary Policy Committee (MPC) is scheduled to start its three-day deliberations on Wednesday. The decision of the rate-setting panel would be announced on Friday,  (September 30).

The US Fed delivered the third consecutive rate hike after it raised the rates by 75 bps to take the target range to 3 - 3.25 per cent. The central banks of the UK and the EU have also gone for rate hikes to tame inflation.

Meanwhile, as per the Asian Development Bank (ADB) economic activity still to reach pre-pandemic levels, and the RBI may slow down the pace of rate hikes until next year to quell soaring inflation while supporting growth, the Asian Development Bank (ADB) says in its latest report.

The ADB has raised the inflation forecast for the current fiscal year ending in March 2023 to 6.7 percent from its earlier projection of 5.8 percent. For the next fiscal year too, the forecast has been revised upwards to 5.8 percent from 5 percent earlier.

Inflation will remain elevated this year and the next, ADB said in an update to its flagship Asian Development Outlook (ADO) 2022 report.

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