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Will Shaktikanta Das Raise Key Policy Rates by Another 50 bps Today?


RBI Monetary Policy 2022 Live Updates: The Reserve Bank of India’s (RBI) rate-setting panel is expected to raise the policy rate ranging between 35 to 50 basis points (bps). The decision of RBI Governor Shaktikanta Das headed the six-member Monetary Policy Committee (MPC) will be announced today. The Monetary Policy Committee (MPC) began its three-day meeting on September 28.

If it happens, a 50 bps increase in the repo rate this week would be the fourth consecutive one since May. That would take the repo rate, at which the RBI lends short-term funds to banks, to 5.90 percent – the highest level since April 2019 – from 5.40 percent currently.

The MPC has increased the policy repo rate by 140 basis points since May to quell inflationary pressure. One bps equals one-hundredth of a percentage point.

The consumer price index (CPI) based retail inflation, which had started showing signs of moderation since May, has again firmed up to 7 per cent in August. The RBI takes into account retail inflation while framing its bi-monthly monetary policy.

In a report, Morgan Stanley has also said the MPC is likely to increase the repo rate by 50bps, to 5.9 per cent, with an unchanged stance. On inflation, Morgan Stanley said it has been range-bound around the 6-7 per cent mark since January 2022 (barring April 2022). “We expect inflation to remain sticky around 7.1-7.4 per cent in September as well, driven by increases in food prices as per high-frequency food price trend. Thereafter, we expect the trend to moderate but remain above 6 per cent until Jan/Feb-23,” Morgan Stanley’s report noted. According to the report, the inflation outlook is on the upside due to uncertainty around the food inflation trajectory (sowing for rice, and pulses is lower YoY), changes in global commodity prices, and the possibility of imported inflation if the exchange rate weakens amid dollar strength.

According to Emkay Global, the RBI is set to deliver another front-loaded 50bps hike this week. While there are merits in favour of a 35bps hike (nascent credit cycle, limited fiscal impulse, and better transmission amid tighter liquidity to name a few), the net cost of soft signaling could turn out to be higher than that of an outright front-loaded 50bps hike at this point, Emkay Global said. Liquidity tightness would lead to faster and better transmission, implying that the RBI may not get too restrictive and the terminal rate could hover near the estimated real rates, i.e., not more than 100bps hikes ahead. However, the situation globally is still fluid, and macro assessments might require frequent adjustments ahead from a policy perspective, Emkay Global added.

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