RBI Will Increase The Repo Rate For The Fourth Time In A Row!

The Reserve Bank of India (RBI) may increase the repo rate for the fourth time in a row to control inflation. For this, he can also take the opinion of the central banks of other countries including the US Federal Reserve.

RBI has increased the repo rate by 140 basis points (bps) since May. Experts say the central bank can now take it to a higher level (5.9 percent) in three years with an increase of 50 basis points. The Central bank had raised the repo rate by 40 bps in May and 50 bps each in June and August. The present rate is 5.4%.

Consumer Price-Based (CPI) retail inflation, which started showing signs of moderation in May, rose again to 7 percent in August. The central bank takes into account retail inflation while formulating its bi-monthly monetary policy.

The RBI Governor-led Monetary Policy Committee (MCP) is scheduled to begin its three-day meeting on Wednesday. The decision of this meeting will be announced on Friday 30 September.

The U.S. Fed delivered a third consecutive rate hike after it raised the rates by 75 bps to take the target range to 3 - 3.25%. The Central banks of the U.K. (The United Kingdom) and the EU (The European Union)  have also gone for rate hikes to tame inflation.

Madan Sabnavis, Chief Economist at Bank of Baroda, said inflation in India remains high at around 7% and is unlikely to come down any time soon.

The government has tasked the RBI to ensure the retail inflation remains at 4%, with a margin of 2%, on either side. Dhruv Agarwala, Group CEO, Housing.com, said reining in inflation will remain the RBI’s top concern amid resilient economic expansion and robust credit growth.

“Any hike in rates would result in banks increasing home loan interest rates, too. But, we are of the opinion that its impact would not be significant as demand for property remains robust. Demand is only going to accelerate further during this festive season,” he said.

ICRA's Chief Economist Aditi Nair also expects a 50 basis point increase from the Monetary Policy Committee in September 2022.