The Reserve Bank of India, part of a chorus of global central banks to rein in inflation, is expected to raise interest rates this week, according to an ET survey. However, the magnitude of the increase is uncertain as it takes into account moving factors such as crude oil, government fiscal measures and the monsoon's impact on grain production to forecast future prices.

     

The policy rate could be increased by between 25 and 50 basis points, raising the rate at which the RBI lends to banks from the current 4.4% to 4.9%, according to the survey. Nearly half of the 23 market participants surveyed for the survey, including traders, economists, fund managers and directors of financial institutions, forecast an increase of 50 basis points, or half a percentage point more, while the others expect an increase of between 25 and 40 basis points.

After the unexpected action on rates and liquidity in May, the RBI could redouble its efforts by also raising the cash reserve ratio (CRR), the proportion of deposits that banks hold with the central bank, to prevent the consumer price index exceeds its upper tolerance. 6% limit.

MPC decision on Wednesday

While the rate hike is a given, investors will keep a close eye on inflation expectations and the likely final rate in this bull cycle as the RBI still tries to fuel an economic recovery through higher investment.

The Monetary Policy Committee (MPC) could raise inflation forecasts and lower growth expectations, but the magnitude of those expectations would depend on reading the invisible hand of the government in managing tax rates to keep the price under control. "To strike the right balance between sluggish growth and expected moderation in inflation, the pace of rate hikes needs to be calibrated, especially after the core consumption tax cuts," said A Balasubramanian, CEO of Aditya Birla MF. "Aggressive rate hikes are unlikely to materialize. Also, the prospect of a good monsoon will start to weigh on consumer prices."


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