India’s RBI may raise the repo rate to 6%, but the pace may slow: analysts

The Reserve Bank of India is expected to boost its benchmark policy rate by up to 60 basis points by the end of 2022 before pausing, although the rate of hikes is expected to decelerate, according to economists.

“We maintain our view of a terminal policy rate of 6% […] We anticipate a 35 basis point hike at the September meeting and a final 25 basis point hike in December, before growth concerns and the cumulative rate hikes delivered thus far lead the MPC to shift into an extended pause,” Nomura economist Sonal Varma wrote in a note.

On Friday, the RBI’s monetary policy committee (MPC) upped the repo rate by 50 basis points, the third rise in the current cycle, to calm stubbornly high inflation that has been above its tolerance band for six months.

Since beginning its rate hike cycle in May with an unscheduled meeting, the RBI has raised the repo rate by a total of 140 basis points. It is slated to convene in both September and December.

According to Kotak Mahindra Bank, the repo rate would be lifted to 5.75 percent -6.00 percent, and the RBI will continue to boost rates as a line of defence for rupee stability and against rising inflation.

The Indian rupee has fallen 6.9 percent against the US dollar so far in 2022, reaching a record low of 80.0650 in July.

The RBI kept its retail inflation projection for the current fiscal year constant at 6.7 percent, while Governor Shaktikanta Das expressed concern over rising prices.

Despite falling to 7.01 percent in June from an eight-year high of 7.79 percent in April, annualised inflation is likely to remain above the central bank’s tolerance range of 6.00 percent for the majority of the fiscal year. The July data is coming on Friday.

Yes Bank anticipates a 25 basis point rate increase at each of the next two sessions, as slowing global GDP leads to a slower pace of policy tightening.