According to a Reuters poll, the Reserve Bank of India (RBI) will raise its repo rate in June, and at a faster rate than forecast just a few weeks ago, as rising inflation puts pressure on the central bank to move sooner.
Retail inflation increased to nearly 7 percent in March, exceeding the central bank's goal range of 6 percent, and is expected to rise higher as a surge in global oil prices since Russia's invasion of Ukraine penetrates into consumer pricing. Despite moving its focus from growth to inflation, the Monetary Policy Committee (MPC) retained its reference rate at a record low 4.0 percent in April.
However, the RBI's 17-month high inflation statistic leaves no choice but to hike sooner rather than later, and all but three analysts polled by Reuters between April 20 and 25 expected the RBI to raise the repo rate for the first time since 2018 in June.
Only one projected a 50 basis point hike, while 42 predicted a 25 basis point hike to 4.25 percent. Just a few weeks ago, only around a quarter of economists (12 out of 50) predicted the first rate hike in June, with the majority expected an increase in August.
"Given the rising inflation trend and the very real possibility of the MPC confronting its first official "failure" of the monetary policy framework, the RBI will move its stance to "neutral" in June and begin a brief rate hike cycle," said Rahul Bajoria, Barclays' chief India economist.
More hikes are projected in the coming quarters, bringing the repo rate to 4.75 percent and 5.25 percent, respectively, by the end of 2022 and 2023, compared to 4.50 percent and 5.00 percent in the previous poll.
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