RBI's rate-setting panel starts deliberations; decision tomorrow

New Delhi, September 28

The RBI’s rate-setting panel on Wednesday started deliberations on the keenly awaited monetary policy amid expectation of 50 basis points hike in interest rate to check inflation and improve foreign capital inflow to arrest declining value of rupee against the US dollar.

The decision of RBI Governor Shaktikanta Das-headed six-member Monetary Policy Committee (MPC) will be announced on September 30.

The government has tasked the central bank to ensure the consumer price index (CPI)-based inflation remains at 4% with a margin of 2% on either side, but retail inflation has stubbornly stayed above the RBI's comfort zone since January.

As per the latest data, the inflation was at 7% in August.

While inflation remains high, the Indian rupee is sliding sharply against the US dollar and was currently trading near 82 against the greenback. The rupee depreciation has hastened following the US Fed raising their interest rate thrice by 75 basis point each in the recent past. Other major central banks too have become aggressive in raising rates.

The RBI, which has since May raised the repo rate by 140 basis points (bps), may yet again go for a 50-bps increase, which will take the key rate to a three-year high of 5.9%, say experts. The present rate is 5.4%.

Industry body Assocham said hike in policy interest rates by the RBI in the range of 35-50 basis points seems unavoidable, given the tightening of rates by most of the central banks, including the US Federal Reserve.

"While the industry would like to see lower interest rates, the main challenge and the priority is to tackle inflation head-on so that we have a sustainable growth," said chamber's secretary general Deepak Sood.

He said the accommodative stance by the RBI supported by several fiscal measures by the government had certainly helped the economy in a multi-pronged manner.

Ramesh Nair, CEO, India and Managing Director, Market Development, Asia, Colliers expects the repo rates to see a further rise, as the government is trying to curb inflation levels.

"The current repo rates stand at 5.4% with the rate hovering above pre-pandemic levels. Banks have begun raising loan interest levels as a result of higher repo rate," he said.

However, the upcoming festive season will spur sales as the developers are expected to offer attractive deals to homebuyers and this could neutralise the impact of rising home loan rates to some extent, he added.

Besides inflation, the RBI is also likely to come out with steps to shore up foreign capital inflows to check the declining value of the rupee against the US dollar. Forex reserves have declined by $86 billion to $546 billion (from their highs last year). — PTI

Experts see 50 bps hike

• The RBI may yet again go for a 50-bps increase, which will take the key rate to a three-year high of 5.9%, say experts
• Industry body Assocham said hike in policy interest rates by the RBI in the range of 35-50 basis points seems unavoidable, given the tightening of rates by most of the central banks, including the US Federal Reserve

#inflation #Reserve Bank of India RBI