Bombay:
The Reserve Bank of India (RBI) is expected to go for another 0.40 percent rate hike in its planned monetary policy review next week, a foreign brokerage firm said Friday.
The central bank’s rate-setting panel will follow up with a 0.35 percent rate hike on its next review in August, or a 0.50 percent hike next week and a 0.25 percent hike in August, to increase the total quantum of rate hikes at 0.75 percent, according to the Bofa Securities report.
On May 4, the RBI raised interest rates by 0.40 percent, and Governor Shaktikanta Das has already termed a rate hike in the upcoming review as a “no brainer” given pressure to keep its core inflation mandate in the target band of below 6. to enforce. per cent.
The brokerage’s report said headline inflation would hit 7.1 percent for May due to a surge in tomato prices.
While citing measures such as cuts in excise duties on fuel products, duty-free imports of crude soybean and sunflower oils, and cuts in aviation turbine fuel (ATF) prices, the report says such measures will help prevent runaway inflation. .
However, it said consumer price inflation will average 6.8 percent in 2022-23 — well above the RBI’s tolerance limit of 6 percent.
The central bank itself will revise its estimate upwards to 6.5 percent in 2022-23 from the current 5.7 percent, she added.
“… we expect the RBI MPC to raise the policy repo rate by 0.40 percent in June and 0.35 percent in August. We must emphasize that because of the standardized steps, the probability of an increase of 0.50 and 0 “25 percent quite large is also high,” the report said.
Most importantly, RBI MPC will exit ultra-accommodation in August and bring the policy repo rate to pre-pandemic levels of 5.15 percent, it said, adding that if inflation remains high after that, the RBI will take the repo rate to 5.15 percent. .65 percent by the end of 2022-2023.
The brokerage said it also sees another 0.50 percent increase in the Cash Reserve Ratio (CRR), or the ratio of demand deposits parked by lenders with the RBI without any returns, as the central bank normalizes liquidity conditions by to absorb excess inventories.
It can be noted that the RBI had increased the CRR by 0.50 percent to 4 percent on May 4 in order to suck Rs 87,000 crore of liquidity from the system.
In terms of growth, the brokerage maintained its estimate of 7.4 percent growth in real GDP for 2022-23, adding that the RBI will also maintain its 7.2 percent estimate.