RBI's MPC likely hike policy rate by 25-35 bps: Experts

CHENNAI:  In its upcoming meeting, the Reserve Bank of India's Monetary Policy Committee (MPC) may raise the repo rate by 25 to 35 basis points (bps).

"In the forthcoming meeting, we anticipate a 35 bps rate increase. By the conclusion of the fiscal year, Consumer Price Index (CPI) inflation will probably decelerate and fall below 6% "Chief Economist at CARE Ratings is Rajani Sinha.

She added that the Wholesale Price Index (WPI), which was 16% in May/June, has also dropped drastically to about 8%. "It is a huge comfort that commodity prices have decreased globally. The issue is that India's core inflation rate is still very high, at or over 6%. Food inflation, in particular the inflation of cereal, is also high "Sinha made a point.

This will put upward pressure on household inflationary expectations which is already at a high of around 10 percent. Hence, while there is some reprieve on the inflation front, RBI would remain vigilant, she said.

There is a likelihood that the US Federal Reserve could slow down its rate increases, which would provide RBI and other central banks some breathing room.

High-frequency economic data like vehicle sales, GST collection, e-way bill, and PMI continue to point to a solid rebound on the growth front. However, Sinha said that other consumption indices, such as IIP consumer durables and non-durables, continue to be subpar. Furthermore, when the world economy weakens, so does external demand.

"As the real interest rate moves into positive territory, RBI will use extreme caution to avoid raising rates further than necessary. Also, the Central Bank would want more time to assess the success of the current tightening of monetary policy" she said.

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