RBI raises inflation forecast today: Policy interest rates will likely to increase

According to market experts and economists, the Reserve Bank of India (RBI) is expected to raise the policy repo rate by 40 basis points to 4.80 percent on Wednesday and raise the inflation prediction for the current fiscal year to above 6% from its previous expectation of 5.7 percent.

Because inflation has been above the central bank’s tolerance limit for several months, the RBI’s six-member Monetary Policy Committee (MPC) is almost certain to raise policy interest rates. RBI Governor Das recently stated in an interview that rate hikes in June are a “no-brainer.”

While a rate hike is unavoidable, as RBI Governor Shaktikanta Das stated last month, the question of by how much remains.

“In its June policy meeting, the RBI is expected to raise the repo rate by 40 basis points. However, depending on how the MPC wants to attain the pre-pandemic repo rate of 5.15 percent or around that mark by the end of August policy, we should be open to a rate hike of 35-50 basis points” stated Suvodeep Rakshit, Senior Economist at Kotak Institutional Equities.

The central bank raised the policy repo rate by 40 basis points, or 0.40 percent, to 4.4 percent in its off-cycle monetary policy review last month. The policy repo rate was raised for the first time in nearly two years. The repo rate is the interest rate at which the Reserve Bank of India lends banks short-term cash.

Since the beginning of the year, inflation has been above the RBI’s target range of 2-6 percent.

In April, India’s Consumer Price Index (CPI)-based inflation hit an eight-year high of 7.79 percent, according to the most recent figures available. Since January 2022, it has been above 6%.

In a research report, Bank of America Securities predicted that retail inflation would be around 7.1 percent in May. According to Bank of America Securities, CPI-based inflation is expected to average 6.8% this fiscal year.

The RBI is expected to raise its inflation projection for the current fiscal year to above 6%, given the recent increase in inflationary pressure.

The Reserve Bank of India raised its inflation forecast for the current financial year to 5.7 percent in April, up from 4.5 percent in February.

The RBI is expected to lift its inflation forecast for the current fiscal year to 6.5 percent, according to Bank of America Securities. The RBI is expected to increase its inflation forecast either next week or in August.

“Along with the repo rate hike, the RBI will likely revise its inflation predictions upward, implying that inflation would remain close to 7% for the majority of CY 2022,” Rakshit predicted.

“We expect the RBI to keep focusing on inflation and signalling its desire to keep raising rates and normalising liquidity, but not completely abandoning growth given the uneven character of the recovery,” he said.

Making the case for the need to raise policy rates, Churchil Bhatt, Kotak Mahindra Life Insurance Company’s Executive Vice President, stated, “Markets should be more concerned about policymakers’ failure to contain the inflation genie than with their efforts to do so. In June, the MPC is expected to issue a no-brainer policy rate hike of 25-40 basis points (bps).”

The RBI is expected to boost the policy rate by 0.40 percent next week and by 0.35 percent in August, according to Bank of America Securities.

The Reserve Bank of India (RBI) may raise the repo rate by 0.40 percent next week. Apart from that, it is possible that it may rise by 0.35 percent in the August review. If this does not occur, the RBI may decide to raise rates by 0.50 percent next week and 0.25 percent in August, according to Bank of America Securities.