India: “Most economists agree that the central bank will have to raise interest rates by 50 basis points next week in order to reach the terminal rate of 6.25 percent by the end of the year“. In a rare instance of agreement, economists from SBI, UBS, Goldman Sachs, Barclays, and Bank of Baroda predict. That the RBI-led Monetary Policy Committee will increase the repo rate by 50 basis points on September 30. This will bring the total increase in repo rates to 5.90 percentage points since May of this year.

In a thorough note published on Monday, Soumya Kanti Ghosh, the group chief economist of the largest lender in the country. SBI, stated that a 0.50 point hike in the repo rate is inevitable as an aggressive response to external shocks. “The cycle’s highest repo rate is anticipated to be 6.25 percent. In December’s policy, a final rate increase of 35 basis points is anticipated “he added.

After 40 months, liquidity has turned into a deficit. Which appears to be another challenge for the central bank. He said, adding that this may push the RBI to support the market by altering the CRR and OMOs.
Tanvee Gupta-Jain of UBS Securities India. Who shared the same opinions, stated that she anticipates the MPC-RBI to front-load the rate hike cycle and raise the repo rate by an additional 50 basis points (versus 35 previously) the following week. Bringing the terminal repo rate to 6.25 percent (previously 6 percent) by December.

Will RBI Increase Repo Rate in 2022?

On the bright side, she claimed that supply-side factors rather than easy credit conditions driving domestic demand are primarily responsible for the significant current account deficit, elevated CPI inflation, and stretched fiscal position. Rahul Bajoria, the chief economist at Barclays India, also increased the forecast for the repo rate to a 50 bps hike next week (up from 35 bps). And a 35 bps hike in the December meeting (up from 25 bps). With the forecast being more likely to be exceeded if commodity prices rise in.

“We now anticipate 50 basis points (bps) of additional rate increases in 2023 (compared to 75 bps previously), bringing the repo rate to 6.75 percent by April 2023.” The British lender believes that inflation has peaked and anticipates. That the MPC-RBI will shift to a neutral position on declining commodity prices. However, we believe that the MPC will continue with its front-loaded tightening cycle as a result of tighter global financial conditions and high inflation.

CPI Inflation

A hike of 25 to 35 bps would have indicated that the RBI is confident the worst of the inflation is over. But Madan Sabnavis, the chief economist at Bank of Baroda, said. That recent developments in the forex market may prompt a higher quantum of 50 bps to stay on track with other markets and maintain investor interest.

Santanu Sengupta of Goldman Sachs stated that he had also budgeted for a 50 bps increase (up from 35 bps) and a 35 bps increase in December (up from 25 bps), with the forecast being at risk of exceeding expectations if commodities prices rise in. We now anticipate 50 basis points (bps) more rate increases in 2023. (compared to 75 bps earlier), bringing the repo rate to 6.75 percent by April 2023.