RBI repo rate likely to hiked

Share

Tweet

Share

Share

Email

Comments

Mumbai [Maharashtra], Oct 3 : Market and financial experts are expecting a 25 basis point hike in the Reserve Bank of India’s (RBI) repo rate.

This comes as the Monetary Policy Committee (MPC) began its three-day meeting on Wednesday, ahead of the announcement of the fourth bi-monthly monetary policy on October 5.

Erosion of Rupee against the US Dollar, costlier crude oil and inflation are the three major reasons for market experts to think of a raise in rates by the central bank. Due to the high crude oil prices in the international markets and other factors of retail, the MPC is most likely to change its projection for inflation in the second half of the fiscal year.

Earlier, it had projected inflation at 4.8 per cent in the second half of this fiscal year, and are now likely to change their earlier projection. Also, the value of Rupee is at an all time low, which will also be a major cause of concern for the MPC to consider a rate hike. Earlier in the day, the Rupee traded at Rs. 73.3 against one dollar, which is said to be one of the biggest plunges of the currency.

To make the Rupee stronger and strike a balance, the RBI is most likely to raise the rates by 25 basis points. “The MPC meeting is happening at a time when a tale of two Cs -Crude oil prices and Currency — is unfolding. The INR has depreciated almost 7 per cent since the last policy while crude oil prices are up by over 17 per cent.

This, clearly is a double whammy for a net oil importing nation like India. While the H1 FY2019 CPI is likely to be within the RBI’s target range, key is to see how much could H2 FY2019 play spoil sport amid rising crude prices,” said Lakshmi Iyer, CIO (Debt) and Head of Products, Kotak Mahindra Asset Management Company.

“The rising US rates and the intent to effect many more rate hikes would also be a pointer for our policy makers. Hence, it seems like the stage is set for yet another rate hike. Will this hat-trick be accompanied by a change in stance is the key thing to watch out for in the accompanying text.

Markets seem to already have discounted a rate hike at the current prices and the tone of the policy could be a key determinant for yield movements,” she added. According to market and trade analyst Sunil Shah: “RBI has to make very crucial decision at this hour of rising crude oil prices, plunging rupee and threat of high inflation rates…..So according to me RBI is compelled to raise the rates by at least 25 basis points.”