RBI may go for 40-bps rate hike post MPC meet

Mumbai: Reserve Bank of India (RBI) is likely to increase its repo rate by 40 basis points (bps) on conclusion of the three-day monetary policy committee (MPC) meet, which is set to begin on June 6. Bizz Buzz interacted with experts to find out what MPC is likely to do this time.

According to experts, for the entire fiscal, the repo rate may go up by 100-125 basis points. Last month, RBI Governor had indicated that key policy rates will continue to go up for next few bi-monthly monetary policy reviews, at least in the next meeting.

He had also hinted at few other actions. He had made it clear that the steps taken by RBI and the government will have sobering effect on inflation going forward.

"We see 100-125bps more front-loaded hikes in FY23 and 50bps of CRR hikes, with the June policy seeing 40-50bps hike + 25bps CRR hike," said Emkay, a financial services company.

Suvodeep Rakshit, senior economist at Kotak Institutional Equitie, said: "We expect the RBI to hike repo rate by 40 bps in the June policy meeting. However, we should be open for a rate hike between 35-50 bps, depending on how the MPC wants to reach the pre-pandemic repo rate of 5.15 per cent or around that mark by the end of the August policy. The RBI is likely to hike the CRR in one of the upcoming policies but will be contingent on how it sees the durable liquidity panning out over the next few months."

We expect another 50 bps of CRR (Cash Reserve Ratio) hike by end-FY2023. Along with the repo rate hike, the RBI will also revise its inflation estimates higher, possibly indicating inflation remaining close to 7 per cent for most part of CY2022, he added.

He expects the RBI to continue focusing on inflation and signaling its intent to continue raising rates and normalising liquidity, while not entirely losing its focus on growth given the uneven nature of growth recovery.

Pankaj Pathak, Fund Manager-Fixed Income, Quantum AMC, says, "We expect that the RBI will hike the repo rate by another 35-40 basis points in the June meeting."

We will not be surprised if they prefer to go slow on rate hikes given the government is also responding to the inflation risks. The recent announcement on fuel tax cuts and reduction of import duties on edible oils will provide some comfort to RBI, he said.

RBI's surprise hike in CRR rate at the start of the month has fuelled an expectation of a further hike in CRR rate in the June policy. However, surplus liquidity in the banking system has fallen sharply in the last three weeks. Currently, the net excess liquidity parked under the RBI's LAF window is close to Rs3 trillion. Analysts believe that the RBI will be comfortable with this level of liquidity at this juncture. So, it may keep CRR rate unchanged.