Sunday, Nov 27, 2022

RBI’s Monetary Policy Committee Meeting Starts Today; 50-Bps Rate Hike Likely

The RBI is likely to go for a 50-bps increase to take it to a three-year high of 5.9 per cent from the present 5.4 per cent


The Reserve Bank of India’s (RBI) monetary policy committee (MPC) is set for its bi-monthly review meeting starting today. The decision of the rate-setting panel would be announced on Friday (September 30).

To control inflation, RBI may take cues from its global counterparts, including the US Federal Reserve, to raise interest rate for the fourth time in a row on Friday, as per a PTI report.

The RBI is likely to go for a 50-bps increase to take it to a three-year high of 5.9 per cent from the present 5.4 per cent.

The central bank had raised the repo rate – the rate at which the central bank of a country lends money to commercial banks– by 140 bps this fiscal (40 bps in May and 50 bps each in June and August). 

What Is The Monetary Policy Committee?

The monetary policy committee (MPC) is a six-member body that is mandated to determine the policy interest rates required to achieve the inflation target while keeping in mind the objective of economic growth. 

The committee meets bi-monthly or six times in a financial year.

Will RBI Hike Interest Rates Once Again?

In the upcoming Monetary Policy Committee (MPC) review, the Reserve Bank of India (RBI) is likely to go with a 50 basis point hike in the repo rate.

Global investment and financial services firm Morgan Stanley recently said RBI is likely to raise repo rates by another 50 basis points with an unchanged policy stance. 

According to SBI Research, the RBI is expected to raise interest rates in the range of 35-50 basis points.

The RBI may also take a cue from other central banks for the rate hike, mainly from the US Fed which delivered the third consecutive rate hike after it raised the rates by 75 bps to take the target range to 3 - 3.25%. The Central banks of the UK and the EU have also gone for rate hikes to tame inflation.

Previous MPC Meeting

In its previous review meeting in early August, MPC had unanimously decided to raise the repo rate by 50 basis points to 5.40 per cent to stem inflation. The hike took the repo rate above pre-pandemic levels of 5.15 per cent.

Raising interest typically suppresses demand in the economy, thereby helping inflation to decline.

Inflation In India

Retail inflation exceeded RBI's tolerance band for the eighth consecutive month in August, rising 7 per cent from 6.71 per cent the previous month due to a sharp rise in food prices. 

The RBI takes into account retail inflation while framing its bi-monthly monetary policy. The RBI is mandated to keep inflation in a range of 2-6 per cent. 

The MPC reiterated that retail inflation is projected to remain above the upper tolerance level of 6 per cent through the first three quarters of 2022-23.

Further, India's wholesale inflation declined during the month of August to 12.41 per cent from 13.93 per cent the previous month but continues to remain in double digits, official data showed. The wholesale inflation has been in the double-digit for 17 months in a row now.