Mumbai: The Reserve Bank of India’s Monetary Policy Committee (MPC) began its three-day meeting on Monday, with expectations building that the central bank could raise the repo rate by 25 basis points amid rising inflation risks and the West Asia conflict.
The RBI will announce the monetary policy decision on October 7 at 10 am. A PTI poll of 16 economists and bankers showed that a majority expect a 25-basis-point hike, along with a hawkish policy tone.
Rate Hike Could Mark Policy Reversal
A rate increase would mark a reversal in the RBI’s policy direction after rate cuts in 2025 and a prolonged pause thereafter. The repo rate currently stands at 5.25 per cent.
The RBI last raised the repo rate in February 2023, when it increased the rate by 25 basis points to 6.50 per cent.
Goldman Sachs expects the RBI to raise rates by 25 basis points each in October and December. It also sees the possibility of the policy stance shifting from “neutral” to “calibrated tightening” or “withdrawal of accommodation”.
Inflation Risks Rise
India’s retail inflation accelerated to an eight-month high of 4.82 per cent in August from 4.45 per cent in July.
Dipti Deshpande, principal economist at Crisil, said inflationary pressures have increased following the escalation of the West Asia conflict and its impact on energy and commodity prices.
The government has mandated the RBI to keep CPI inflation at 4 per cent, with a tolerance band of 2-6 per cent.
Some Experts Expect A Pause
However, not everyone expects an immediate hike. Bank of Baroda Chief Economist Madan Sabnavis expects the RBI to maintain the repo rate, arguing that waiting until December would provide greater clarity on the kharif crop and inflation.
Shrikant Goyal, Managing Director at Getfive Funds, also expects the MPC to maintain the repo rate and neutral stance.
Vineet Nahata of Power Gilt Treasuries said a 50-basis-point increase would not be surprising given rising global bond yields, though he sees a 25-basis-point hike as more likely.
