Stories
RBI Expected to Hike Repo Rate by 25 Basis Points to Combat Inflation
- •The Reserve Bank of India is widely expected to raise the repo rate by 25 basis points to 5.5 percent on October 7, marking the first rate hike since February 2023.
- •Elevated crude prices, a weak rupee, and tighter global financial conditions are complicating the inflation outlook and driving the anticipated monetary tightening.
- •A Moneycontrol poll shows that 15 out of 19 market experts expect a 25 bps rate increase, while four expect the status quo to be maintained.
- •Markets will closely monitor the RBI's guidance on the pace and depth of the tightening cycle, inflation and growth assessments, and liquidity management strategy.
- •External risks such as rising global bond yields and pressure on the currency are forcing the central bank to respond to imported inflation.
Key Questions Answered
The Reserve Bank of India is expected to raise the repo rate by 25 basis points to 5.5 percent due to elevated crude prices, tighter global financial conditions, and a weak rupee complicating the inflation outlook. This would mark the first rate hike since February 2023 after 21 consecutive monetary policy committee meetings without one.
Economists expect the central bank to signal further rate hikes, with cumulative increases projected around 75 basis points through February, potentially accompanied by a shift toward a more hawkish stance. A majority of experts in a Moneycontrol poll anticipated a 25-bps rate increase.
System liquidity has declined to around Rs 4-6 lakh crore from touching roughly Rs 12 lakh crore earlier in September following open market operation sales and variable rate reverse repo operations. The banking system liquidity surplus stood at Rs 5.03 lakh crore on October 6.
