RBI likely to moderate rate tightening amid retail inflation, say experts

According to experts, after three consecutive 50 basis point rate hikes, the RBI may decide to reduce the rate increase by 25 to 35 basis points for lending rates

At its upcoming monetary policy review on Wednesday, the Reserve Bank of India (RBI) may indicate a slower rate of tightening in light of retail inflation showing indications of moderating and the need to spur development, reported Livemint citing experts.
 

After three consecutive increases in interest rates of 50 basis points, according to experts, the RBI may decide to choose a smaller rate increase of 25–35 basis points for lending rates.
 

A three-day meeting of the six-member rate-setting panel, overseen by RBI Governor Shaktikanta Das, is expected to start on Monday. After the three-day meeting, the central bank will release its bimonthly policy review on December 7.
 

In addition to domestic factors, the US Federal Reserve, which hinted at a lesser rate hike of 50 basis points later in the month, is another source of guidance that the RBI committee is anticipated to use.
 

The US Fed had already increased the benchmark interest rates four times by 75 basis points each to reduce inflation.
 

Industry group Assocham has requested the RBI reduce the interest rate increases in order to prevent negative impact on the emerging economic recovery.
 

Madan Sabnavis, Chief Economist at Bank of Baroda said to Livemint, “We do believe that the MPC will continue with rate hikes this time though the magnitude will be lower -- probably 25-35 bps. More specifically we do believe that the terminal repo rate for the financial year will be 6.5 per cent, which means there will be one more rate hike in February.”

He further said that there will not be any surprise for the market just as is the case for global markets too, which are now expecting more moderate increases in interest rates by the Fed.

The conclusion of the RBI's monetary policy is likely to have a significant impact on how domestic equities perform and how the markets move.
 

Since May this year, the central bank has hiked the repo rates by 190 basis points to tackle inflation.