A US brokerage said on Wednesday that the Reserve Bank of India’s rate-setting panel will hike the key repo rate by 0.35 per cent in its meeting next week.
BofA Securities said in a report published ahead of the Monetary Policy Committee (MPC) resolution that the hike would be accompanied by a “calibrated tightening” of the policy stance change, which is to be announced on August 5.
The RBI has hiked a cumulative 0.90 per cent in two tough moves in May and June, in response to runaway headline inflation, which has crossed the upper end of the target set for the central bank for several months in a row.
Referring to the policy actions since April, when the RBI introduced the permanent deposit facility, the brokerage said the central bank has effectively hiked rates by 1.30 per cent.
“In our base case, we now see that the RBI MPC has increased the policy repo rate by 0.35 per cent, taking it to 5.25 per cent (above pre-pandemic level), from the return of housing to a calibrated tightening stance. With the change in,” the report said.
The brokerage expects the MPC to retain its FY23 consumer price inflation (CPI) and real GDP growth forecast at 6.7 per cent and 7.2 per cent, respectively.
Last week, RBI Governor Shaktikanta Das said headline inflation, which stood at 7.04 per cent for April, is peaking.
The MPC may adopt more aggressive measures and hike rates by 0.50 per cent as it did in June, joining some developed market and regional central banks that have sent strong signals.
On the other hand, a 0.25 per cent hike in rates also cannot be ruled out, the brokerage said, explaining that the MPC can accept that inflation is peaking and there is a downside risk in their projections, which will be pushed back from here. will be measured.