What to expect from the RBI's upcoming monetary policy announcement?

In the last policy announcement on June 8, the Reserve Bank of India (RBI) announced a repo rate hike of 50 basis points to take the rate from 4.4 per cent to 4.90 per cent

The Reserve Bank of India (RBI) is holding its Monetary Policy Committee (MPC) meeting between August 3 and 5. RBI governor Shaktikanta Das is expected to announce the interest rate revision on Friday. In the last policy announcement on June 8, the RBI announced a repo rate hike of 50 basis points to 4.90 per cent. The repo rate is the rate at which commercial banks borrow short-term funds from the RBI.

Repo rate largely determines the interest given by the banks on the deposits by the customers. It also determines the interest rate charged by the banks on loans and advances. 

Experts expect a repo rate hike of 30-50 basis points, a Business Standard poll showed on August 1. One basis point is equal to 0.01 per cent. In the last two revisions, the repo rate has been hiked by 90 basis points by the RBI.

S&P, a global rating agency in July, said it expects a 'significant' hike in the policy rates by the RBI in the upcoming meetings. The US Federal Reserve (Fed), on July 28, announced a 75 basis points hike in its benchmark interest rate.

A poll by CNBC-TV18 showed that the RBI is expected to hike the repo rate from 50-100 basis points. It also said that the rate hike was a 'no brainer'. Moneycontrol stated that the rate hike is expected to be higher than 35 basis points and is expected to stay between 35 and 50 basis points.

On the other hand, Zee Business quoted Sachchidanand Shukla, Chief Economist, Mahindra and Mahindra, saying that the repo rate is expected to go up by 40 basis points in the upcoming announcement. He also said, "We expect CPI prints to average around 6% by Q4-FY23. CRR is likely to be left unchanged in this policy meeting as surplus liquidity hovers around 1.5% of the NDTL mark."

The benchmark rates are hiked to control the demand, resulting in inflation in the country. The consumer price index (CPI)-based inflation in India has eased marginally since the RBI first announced the rate hikes in May but has stayed out of the RBI's upper tolerance limit of 6 per cent.

In June, CPI inflation was recorded at 7.01 per cent, down from 7.04 per cent in May. However, the core inflation rose from 5.5 per cent to 5.96 per cent. Core inflation does not include the price rise in the food and energy sectors, as they are considered too volatile.

The oil prices have remained high since the war in Ukraine, signalling inflation may continue to stay high. On Thursday, Brent crude oil was trading at $97 per barrel; it was $70 per barrel a year earlier. The oil prices peaked at $127 per barrel in March.