The Reserve Bank's rate-setting panel will begin its 3 day deliberations on Wednesday amid expectations of another rate hike of 50 basis points to check high inflation, in line with similar actions taken by other major central banks, including the US Fed.
The Monetary Policy Committee's recommendations had led to 50 basis points increase in repo rate each in June and August, after raising the short-term lending rate by 40 basis points in an off-cycle decision in May.
The MPC, headed by RBI Governor Shaktikanta Das, is scheduled to meet on September 28 -- 30. The RBI has raised the repo rate by 140 basis points bps since May, and will take the key rate to a three-year high of 5.9 per cent, according to experts. The current rate is 5.4 per cent.
The consumer price index CPI based on retail inflation, which had started showing signs of moderation in May, has firmed up to 7 per cent in August. The RBI takes into account retail inflation in order to frame its bi-monthly monetary policy.
The US Fed raised the rates by 75 bps to take the target range to 3 -- 3.25 per cent after it raised the rates by 75 bps. The central banks of the UK and the EU have gone for rate hikes to tame inflation.
In a report, the Bank of Baroda said that monetary policy will be closely watched this time, given the recent developments in the forex market after the Fed raised rates last week. The RBI's view on all issues will give guidance to the market on repo rate, stance, growth and inflation projections, rupee, liquidity and global view.
In the upcoming credit policy of RBI, which is scheduled for September 30th, 2022, we expect MPC to raise the repo rate by another 50 bps. The report said that rates will go up to 6 -- 6.25 per cent.
The RBI has asked the RBI to make sure retail inflation stays at 4 per cent, with a margin of 2 per cent on either side.
Since May, the central bank has increased the interest rate by 140 bps in its effort to contain inflation. The RBI expects inflation to stay above its comfort zone despite the sharp hike and retains the CPI inflation forecast at 6.7 per cent for the current fiscal year.
The RBI has no choice but to increase rates, according to Andromeda Loans, executive chairman, V Swaminathan.
Inflation in India is not as much a problem and the quantum of increase should be moderated in this light. Home loan borrowers would be well advised to look at fixed-rate loans in this kind of environment, he said.
Anuj Puri, chairman of the Anarock Group, said that countries have seen back-to-back interest rate hikes in the recent past due to the inflationary pressures.
India is closely tied to the global economy and had to take remedial actions to control inflation, which is driven by domestic as well as global factors.
A 50bps hike shouldn't seriously hamper homebuyers sentiments, despite the degree of discomfort. The festive season is around the corner. This is a time when developers usually roll out various freebies and offers, and we may even see fixed interest rate guarantee plans announced this year, Puri said.
The rupee appreciated 37 paise to 81.30 against the US dollar in early trade on Tuesday as the American currency fell from its elevated levels.
The equity benchmark Sensex and Nifty ended up marginally down on Tuesday, tracking losses in metal, banking and financial stocks.