Interest rates

How much can interest rates increase? Know what the economists say

Even though the Reserve Bank of India (RBI) monetary policy committee is due to meet next week, RBI Governor Shaktikanta Das said expecting a rate hike was a given given the high level of inflation prevailing in the country. Although it did not give an idea of ​​how much the rate-setting panel could raise interest rates, experts say the key repo rate could rise by 25 to 50 basis points (bp ).

The six-member Monetary Policy Committee (MPC) will meet June 6-8 to decide interest rates in the country. The political decision will be announced on the last day of the meeting, June 8.

Suvodeep Rakshit, Senior Economist at Kotak Institutional Equities, said: “We expect the RBI to raise the repo rate by 40 basis points at the June policy meeting. range of 35 to 50 basis points depending on how the MPC wants to reach the pre-pandemic repo rate of 5.15% or around that mark by the end of the August policy.

He added that the central bank is likely to increase the cash reserve ratio (CRR) in one of the upcoming policies, but will depend on how it views sustainable liquidity in the coming months. The CRR is the percentage of liquidity that banks must keep in reserve compared to their total deposits.

“We expect another 50bp hike in CRR by the end of FY2023. Along with the repo rate hike, the RBI will also revise its inflation estimates upwards, possibly indicating that inflation will remain close to 7% for most of calendar year 2022. We expect the RBI to continue to focus on gripping inflation and signal its intention to continue raising rates and to normalize liquidity, while not entirely losing growth given the uneven nature of the growth recovery,” Rakshit said.

Retail price inflation in April stood at 7.79%, its highest level in eight years, forcing the RBI to raise interest rates as part of an off-cycle monetary policy in May. At the April MPC meeting, the RBI had revised its retail inflation forecast upwards to 5.7% for the current financial year 2022-23, from 4.5% previously projected.

Crisil’s chief economist DK Joshi expects the repo rate to rise by 50 basis points in the MPC’s next policy review, while Bank of China’s chief economist Baroda, Madan Sabnavis, said the MPC may decide to raise it by 25 to 35 basis points.

The repo rate (the rate at which the RBI lends money to commercial banks) is one of the external benchmarks mandated by the RBI, based on which commercial banks decide the interest rate for various loans.

Vinod Nair, Head (Research) at Geojit Financial Services: “The late liquidation indicates lack of confidence in the domestic market, driven by concerns over Central Bank policy. While in the global market, investors awaited the release of US jobs data. The RBI is expected to raise rates by 25 to 35 basis points and the US Fed by 50 basis points.

India Ratings and Research (Ind-Ra) expects retail price inflation to average a nine-year high of 6.9% in FY23, and RBI to rise policy rate by at least 75 basis points for the remainder of FY23.

“The upside could also be 100 to 125 basis points, but this will depend on incoming data, political actions by global central banks, global geopolitical situation and its ripple effect on the Indian economy. The first upside rates by the RBI could be in the range of 50 basis points in the June 2022 policy and an additional 25 basis points in the October 2022 policy,” the rating agency said.

He also said that at the same time, the cash reserve ratio could also be increased by 50 basis points to 5% by the end of FY23.

In a recent interview with CNBC-TV18, RBI Governor Shaktikanta Das said, “The expectation of a rate hike is a given. There will be some increase in pension rates, but by how much I cannot say now. »

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