RBI may raise repo rate by 25 bps in June: SBI Ecowrap

The Reserve Bank of India (RBI) will boost the repo rate by at least 25 basis points in June, according to the State Bank of India's economic research team, as the central bank prioritises inflation over growth. "We now estimate a 25 basis point (bps) rate hike in June and August, for a total rate hike of 75 basis points in the (interest rate hardening) cycle," according to SBI's Ecowrap report released on Thursday.

The central bank recently published its monetary policy, which kept the repo rate at 4% constant. Industry analysts feel the RBI's decision to maintain key interest rates and its lenient posture demonstrates the central bank's commitment to long-term growth.

Retail inflation, as measured by the Consumer Price Index (CPI), soared to 6.95 percent in March 2022, up from 6.07 percent in February 2022, owing primarily to rising food prices.  Rate actions beyond August are projected to be more balanced and prudent, with the terminal repo rate expected to be around 5.15-5.25 percent by FY23, according to the report. 

This translates to the RBI not raising the repo rate by more than 1.25 percent in order for the incremental negative contribution to kick in. Retail inflation increased to 7.79 percent on an annual basis in April 2022, up from 6.95 percent in March 2022, owing primarily to increases in food prices. Inflation figures are now expected to remain above 7 percent  through September, according to SBI Research.

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