11 hrs ago
RBI Rate Hike Expected as Inflation and External Risks Rise
The Reserve Bank of India is expected to raise its main interest rate by a small amount.
Economists say higher oil prices and changes in global markets could create problems for India.
They also expect prices in India to rise.
At the same time, India’s economy and exports have been holding up well.
HSBC says a large amount of extra money in banks may need to be taken out gradually.
Axis Bank says more withdrawal steps are not needed right now.
Axis Bank expects interest rates could rise further over time.
The RBI’s policy announcement is due at its October meeting.
Economists at HSBC and Axis Bank expect the RBI to raise the repo rate by 25 basis points to 5.5% at its October policy meeting.
Oil above $100 per barrel, rising global bond yields and a stronger US dollar are seen as risks to India and capital inflows.
HSBC cites resilient growth and stronger exports, but expects inflation to rise to around 5.5% in September and average above 5% over the next 12 months.
HSBC estimates that about ₹6 lakh crore of banking-system liquidity may need to be withdrawn gradually; Axis Bank says it sees no need for additional withdrawal measures now.
Axis Bank expects the policy meeting to prepare markets for rates moving toward 5.75–6% by early FY28, while flagging possible inflation risks from fuel, food and telecom tariffs.
- Who
- The Reserve Bank of India, with economists at HSBC and Axis Bank assessing its expected policy decision.
- What
- A 25-basis-point repo rate increase to 5.5% is expected; the article also discusses inflation, liquidity and the potential path of future rates.
- Where
- India.
- When
- The RBI is due to announce its policy decisions at its October meeting, described in the article as tomorrow.
- Why
- Economists point to rising inflation, external risks, excess banking-system liquidity and resilient growth as factors shaping the rate outlook.
HSBC
Axis Bank
Liquidity withdrawal
HSBC
HSBC estimates around ₹6 lakh crore of liquidity may need to be withdrawn over the next few months, probably gradually unless the RBI chooses a direct measure such as a CRR increase.
Axis Bank
Axis Bank says the FCNR scheme surplus gives the RBI room to manage near-term liquidity and capital-flow risks, and it does not see a need for additional withdrawal measures at this stage.
Future rate path
HSBC
HSBC economists expect a 25-basis-point increase to 5.5% and highlight the factors driving the need for higher rates.
Axis Bank
Axis Bank expects the meeting to prepare markets for further increases toward a neutral rate of 5.75–6% by early FY28, and says fuel, food and nominal-growth risks could raise the prospect of rates going above neutral.
Key facts
- Expected repo rate increase
- 25 basis points, to 5.5%
- Oil price context
- Oil prices are trending above $100 per barrel.
- HSBC September inflation estimate
- Around 5.5%, up from 4.8% in August.
- HSBC liquidity estimate
- Around ₹6 lakh crore may need to be withdrawn from the banking system over the next few months.
- Axis Bank FY27 inflation forecast
- 5.2%, incorporating higher global electronics prices and a possible increase in telecom tariffs.
- Axis Bank longer-term rate outlook
- Rates could move toward 5.75–6% by early FY28.
- Exports cited by HSBC
- India’s exports to the UK rose 12% month-on-month on a seasonally adjusted basis one month after the India-UK FTA took effect.
Quotes
Axis Bank
Bank whose analysts assess the RBI policy outlook and inflation risks.
“we will therefore be watching language and tone in the upcoming policy around risks of having to raise rates above neutral.”
financialexpress.com
Sources
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