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RBI's Aggressive Monetary Policy Hike: Market Reacts with Caution

Strategic Insights

— 1 min read

The Reserve Bank of India's (RBI) surprise decision to hike the policy repo rate by 50 basis points to 4.90 per cent has sparked a mixed reaction from economists and market watchers. According to Abheek Barua, Chief Economist at HDFC Bank, the RBI's move is aggressive and reflects a concern about inflation, which is expected to rise to 6.7 per cent. The policy rate is likely to be raised well beyond the pre-pandemic level, close to 6 per cent by fiscal year-end. Suvodeep Rakshit, Senior Economist at Kotak Institutional Equities, expects 35 bps repo rate hike in the August policy to 5.25 per cent and repo rate at 5.75 per cent by end-FY2023.

Key Takeaways:

  • The RBI's aggressive monetary policy hike has sparked caution among market watchers, with some expecting further increases in interest rates.
  • Abheek Barua, Chief Economist at HDFC Bank, expects the policy rate to be raised to 6 per cent by fiscal year-end, with inflation forecast at 6.7 per cent.
  • Suvodeep Rakshit, Senior Economist at Kotak Institutional Equities, expects 35 bps repo rate hike in the August policy to 5.25 per cent and repo rate at 5.75 per cent by end-FY2023.
  • Anjana Potti, Partner at J Sagar Associates, believes the RBI is fighting an uphill battle to keep inflation below 6 per cent, and expects further jumps in the next few quarters.
  • Shishir Baijal, Chairman and Managing Director, Knight Frank India, expects home loans to get costlier, with interest rates potentially increasing by 30-40bps since the earlier repo rate hike.

Statistics:

  • 50 bps hike in policy repo rate to 4.90 per cent
  • Expected inflation forecast at 6.7 per cent
  • Expected 35 bps repo rate hike in the August policy to 5.25 per cent and repo rate at 5.75 per cent by end-FY2023
  • 30-40bps increase in interest rates for home loans since the earlier repo rate hike
  • 7.79 per cent retail inflation for April 2022, the highest since May 2014

Sources:

  • Abheek Barua, Chief Economist, HDFC Bank
  • Suvodeep Rakshit, Senior Economist, Kotak Institutional Equities
  • Anjana Potti, Partner, J Sagar Associates
  • Shishir Baijal, Chairman and Managing Director, Knight Frank India
  • United News of India
  • HT Digital Content Services

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