The RBI MPC meeting began on Monday, with the three-day Monetary Policy Committee meeting scheduled from October 5 to 7 and the policy decision due on Wednesday. The Reserve Bank of India is weighing its next move amid rising inflation, crude oil prices above $100 a barrel and rupee weakness.
Markets are closely watching whether the Central Bank will raise the repo rate for the first time since February 2023. The RBI has kept the repo rate unchanged at 5.25 per cent.
RBI MPC meeting puts October rate hike in focus
Economists expect the Central Bank to begin a rate-hiking cycle, bringing forward their earlier call for a December hike.
A 25-bps hike in October, rather than December as previously forecast, is possible amid higher energy prices, food inflation and wider price pressures which strengthen the case for tighter policy, according to Bank of America (BofA).
“After almost two years of monetary accommodation, the RBI appears set to take early steps to start withdrawing the policy support in October MPC. As such, we now believe that the RBI will go ahead with a rate hike of 25 bp in October MPC,” said BofA.
Inflation and global risks add pressure on RBI
The balance of risks has tilted decisively towards a 25-bps rate hike by the RBI at this juncture, as a combination of broadening inflationary pressures, worsening global macros, evolving liquidity conditions and a renewed global repricing of risks is making the case for pre-emptive action stronger, SBI Research said in its report.
The RBI’s Monetary Policy Committee (MPC) is meeting from October 5-7, to decide on the benchmark repo rate.
The SBI report said that with geopolitical tensions, crude-price risks and global repricing of risks, “it would be prudent for us to rather act pre-emptively than being behind the curve”.
CPI inflation rises as food and crude risks persist
Inflation is becoming increasingly broad-based. CPI inflation rose to 4.82 per cent in August from 4.45 per cent in July. Strong El Nino conditions and below-normal October rainfall could pose further risks to Rabi output.
Rising crude oil prices, inflation and higher bond yields globally has narrowed Reserve Bank of India’s room to hold rates unchanged.
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