RBI Likely To Increase Repo Rate In June, Sooner Than Expected Previously: Economists

RBI Likely To Increase Repo Rate In June, Sooner Than Expected Previously: Economists
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According to a Reuters survey of economists, the Reserve Bank of India (RBI) is most likely to raise its repo rate in June, which would be faster than was projected just a few weeks ago. This change in the expected timeline is expected because of increasing pressure on the central bank due to a continued surge in inflation puts pressure.

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Despite changing its focus from growth to inflation, the Monetary Policy Committee (MPC) retained its reference rate at a record low 4.0% at its April meeting.

However, March’s 17-month-high inflation figure left little room for the RBI to hike sooner rather than later, and all but three of 46 economists polled by Reuters between April 20 and 25 expected the RBI to lift the repo rate for the first time since 2018 in June.

While 42 economists forecast a 25 basis point increase to 4.25%, only one predicted a 50 basis point increase.

Only a few weeks ago, fewer than a quarter of economists – 12 of 50 – predicted the first rate hike in June, with the majority projecting the first hike in August.

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“Given the elevated inflation trajectory and a very realistic chance of the MPC facing its first official “failure” of the monetary policy framework, the RBI will shift its stance to “neutral” in June and embark on a short rate hiking cycle,” said Rahul Bajoria, chief India economist at Barclays.

In the coming quarters, more increases were projected, raising the repo rate to 4.75% and 5.25% by the end of 2022 and 2023, respectively, from 4.50% and 5.00% in the previous poll.

If realized, the RBI would be the latest to join its rivals in beginning tightening cycles to manage multi-decade high inflation, with some even hiking rates by half a percentage point.

The Federal Reserve of the United States was projected to raise interest rates by 50 basis points at two sessions in May and June.

“The more delay in acting, the greater the possibility you might end up being more aggressive…there are chances the RBI might have to eventually do a Fed,” said Kunal Kundu, India economist at Societe Generale.

“Persistent inflation has finally upended the transitory theory that central banks across the world had seemed to have fallen in love with.”

However, the RBI was expected to adhere to 25 basis point hikes to combat inflation, becoming increasingly sticky.

When asked if the chances of a 50 basis point RBI rate hike in June were low or very low, more than 90% of economists – 28 of 31 – agreed it was low or very low. Only three people said “high” or “very high.”

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