RBI set to announce repo rate decision amid geopolitical tensions

The Reserve Bank of India’s Monetary Policy Committee (MPC), led by Governor Sanjay Malhotra, is set to announce its bi-monthly interest rate decision on Wednesday amid challenging conditions, including rising inflation and crude oil prices above USD 100 a barrel, driven by tensions in the Middle East.

 

The six-member committee will conclude its three-day review against the backdrop of rising domestic inflation and shifting global macroeconomic conditions.

 

Economists expect the RBI to raise the repo rate for the first time since February 2023. The central bank has so far kept the repo rate unchanged at 5.25 per cent.

 

According to Bank of America (BofA), a 25-basis-point hike in October, rather than in December as previously forecast, is possible.

 

“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.

 

Similarly, SBI Research said the balance of risks has tilted decisively towards a 25-basis-point rate hike by the RBI at this juncture, as broadening inflationary pressures, worsening global macroeconomic conditions, evolving liquidity conditions and a renewed global repricing of risks strengthen the case for pre-emptive action.

 

“It would be prudent for us to act pre-emptively rather than be behind the curve,” SBI Research economists said.

 

Additionally, CPI inflation rose to 4.82 per cent in August from 4.45 per cent in July. Strong El Niño conditions and below-normal rainfall in October could pose further risks to Rabi output.

 

In addition, rising crude oil prices, elevated inflation and higher global bond yields have narrowed the Reserve Bank of India’s room to keep rates unchanged.

 

–IANS