RBI to Continue Monetary Tightening, Hike Policy Rate by 25 Basis Points

The Reserve Bank of India (RBI) is expected to continue with monetary tightening measures, with credit rating agency Acuite Ratings and Research predicting a 25 basis points (bps) hike in the policy rate. This move is aimed at safeguarding against the generalization of core inflation pressures into a wage-price spiral. Despite a decline in inflation across most economies, the RBI has chosen to persist with its aggressive monetary policy stance, citing sticky core inflation rates of around 6 per cent.

Key Takeaways:

• Acuite Ratings expects the RBI to hike the policy rate by 25 bps, in line with its previous projections.
• The Monetary Policy Committee (MPC) may opt for a pause to assess the impact of the previous rate hike.
• The RBI's stance may change to "neutral" only after core inflation declines to below 5 per cent.
• Over the last three months, inflation has begun to descend from peak levels across most economies in the world.
• The RBI has highlighted that core inflation continues to remain sticky around 6 per cent levels.
• Acuite Ratings maintains its 10-year Government Securities yield call in the 7.10-7.50 per cent range for the near term.
• The RBI has raised the repo rate by 25 bps to 6.50 per cent, taking the cumulative hike to 250 bps since May 2022.

Statistics:

• 25 bps: Expected hike in the policy rate by the RBI.
• 6.50 per cent: Current repo rate after the latest hike.
• 250 bps: Cumulative hike in repo rate since May 2022.
• 6 per cent: Sticky core inflation rate cited by the RBI.
• 7.10-7.50 per cent: Range for 10-year Government Securities yield predictions by Acuite Ratings.
• 5.6 per cent: Forecasted average inflation rate for Q4FY23.

Sources:

• Acuite Ratings and Research: Credit rating agency report.
• The Kashmir Monitor: Original news article.