RBI to increase rates again; the vast majority of analysts anticipate a 50 bps increase: Report

In a Reuters poll, a slim majority of economists expect a half-point increase, with others expecting a smaller 35-basil point increase . The RBI has boosted rates in three separate steps, totaling 140 basis points .

BENGALURU (BENGALURU): In a Reuters poll, a slim majority of economists expect a half-point increase, with others expecting a smaller 35 basis point increase.The RBI would rate hikes at its meeting on Sept. 30, according to a general consensus, although there were differences on how far it would go with inflation increasing to 7% and with the rupee weakening.Despite inflation hovering above the top of its target range of 2-6%, the RBI has fallen behind many of its global competitors.Since May, it has boosted rates in three separate steps, one of which has been cancelled, totaling 140 basis points and raising the primary repo rate to 5.40%.

The RBI would hike the repo rate by 50 basis points, just over half of the population, 26 out of 51, according to the survey.Another 20 predicted a 35 basis point increase.The remaining five respondents posted more modest increases, ranging from 20 to 30 basis points.Although many revised their estimates up from an August poll, and no one expected the RBI to keep rates unchanged this time, there were no concrete reasons why the central bank would make a smaller move right now, given that most of its competitors are going big.

Despite the obvious scarring from the pandemic, bulging twin deficits-current account and fiscal-in India are likely to put more emphasis on macro stability, said Sajjid Chinoy, chief India economist at J.P. Morgan.However, a food price uptick in recent weeks and a hawkish Fed will force the RBI to move 50bps, rather than 35bps, at the September meeting, and be asked to again in December, bringing the terminal rate closer to 6.25%, which is 50bps higher than we predicted.Nevertheless, the RBI took a more conservative course with rates, with no consensus on where it will stop hiking, but median estimates indicate that the repo rate will rise to 6.00% in each quarter through the end of 2023.Meanwhile, the rupee, which has fallen nearly 9% this year, hit an all-time low of 80.86dollar on Wednesday, lower than analysts predicted in a separate Reuters poll.

In addition, the survey revealed that inflation would continue to rise above the top of the RBI's tolerance range until the first quarter of 2023.Despite India's record of becoming the world's fastest-growing major economy, which was 13.5% last year, the rate of expansion was expected to halve this year to 6.2% and slow to 4.2 percent in the coming two years.The RBI may be slowing down at the same rate as other major central banks.Over 60% of analysts, 23 of whom responded to an additional inquiry, said that a decline in economic growth would have a larger effect on RBI's interest rates deliberations by the end of the fiscal year.