Upcoming Monetary Policy Review: RBI May Increase Repo Rate By 35 Basis Points
At the Reserve Bank of India’s (RBI) upcoming monetary policy review on Wednesday, India’s central bank may decide to raise lending rates by a low 35 basis point amount due to retail inflation displaying indications of ease. The rate over which the Reserve Bank of India lends funds to every commercial banking institution is the repo rate. Repo rate increases result in higher deposit and lending rates.
Therefore, if someone is concerned that their loans will become more expensive, they are not mistaken because the Indian multinational public sector bank and financial services statutory body, the State Bank of India (NSE: SBIN), reports that the RBI may increase the repo rate once again in December. On the contrary, this is great news for investors in FDs because banking institutions would raise interest rates on deposits when the central bank raises repo rates.
Reserve Bank Of India To Spend An Additional $100 Bln To Prop Up The Rupee: Report
In its most recent research report, the State Bank of India stated that they anticipate the Reserve Bank of India to boost rates to a lower magnitude in December, policy tuned to central banks in emerging markets and the overall rate-setting tone. A 35 Basis Points increase in the repo rate seems likely. At 6.25 percent, it might be the current terminal rate. According to the State Bank of India study, the existing Government cash holdings may cause the Reserve Bank of India to modify its position to neutrality on strictly technical grounds.
The report also states that The present government’s cash balances, which stand at 1 Trillion US dollars, may force the Reserve Bank of India to modify its position to neutrality only for technical reasons. Nevertheless, provided that the budget is drawing closer, the government is aware of the fiscal deficit in Fiscal Year 2023 (FY23), capital inflows are persisting, and the United States labor market remains firm, pushing the Federal Reserve to increase rates beyond the 23rd of February, it might not be time for Reserve Bank of India to change its position quite yet as doing so could mislead the markets. The fact is that since capital inflows gained momentum in November, liquidity may receive an improbable cushion of INR injections rather than RBI purchases of dollars or trying to build up reserves.
After the MPC’s 3-day meeting on Monday, the Reserve Bank of India will release its following bimonthly policy review on the 7th of December. To lower inflation, which has been above its desired objective of 6 percent since January, the RBI has raised the repo rates by 190 bps since May.