RBI Latest Update: Reserve Bank of India Likely to Increase Repo Rate up to 50 bps

According to an ET poll, the Reserve Bank of India will hike the policy interest rate this week, as part of a global central bank chorus to contain inflation. However, the amount of the rise is unpredictable since it takes into account changing elements such as crude oil, government tax action, and the influence of the monsoon on food-grain output when forecasting future prices.

According to the survey, the policy repo rate might be raised by 25-50 basis points, bringing the rate at which the RBI loans to banks up to 4.9 percent from the current 4.4 percent. Nearly half of the 23 market players asked for the poll, including traders, economists, fund managers, and heads of financial institutions, predict a 50-basis-point hike, while the rest expect it to be between 25 and 40 basis points.

Following its unexpected rate and liquidity moves in May, the RBI may step up its efforts by raising the cash reserve ratio (CRR), or the proportion of deposits banks retain with the central bank, to keep the consumer price index from exceeding its upper tolerance limit of 6%.

MPC Decision on Wednesday

While the rate rise is a foregone conclusion, investors will be paying close attention to the inflation prediction and the expected terminal rate in this upcycle, as the RBI continues to pursue an economic recovery through increased investment.

The Monetary Policy Committee (MPC) might boost inflation projections and lower growth projections, but the size of these changes would be determined by the MPC's assessment of the government's unseen hand in manipulating tax rates to keep prices under control. "The pace of rate rises should be calibrated, especially following the Centre's excise tax reduction, to strike the correct balance between slow growth and predicted moderation in inflation," said A Balasubramanian, chief executive of Aditya Birla MF.

"Rate hikes that are aggressive are unlikely to occur. In addition, the likelihood of a good monsoon will begin to influence consumer pricing."

The MPC is expected to make a judgment on Wednesday.