1 day ago
RBI May Raise Repo Rate as Inflation Risks Mount
India’s central bank may make borrowing a little more expensive in October.
Economists think it could raise its main interest rate by 0.25 percentage points.
They are concerned that higher oil prices and tensions in West Asia could make prices rise faster.
Food and other costs are also showing signs of pressure.
The central bank has kept this rate at 5.25% since its last cut.
Some analysts think another increase could come in December if oil stays expensive.
Others say any series of increases may be limited if economic growth slows.
The bank’s next decisions will depend on India’s inflation, growth and financial conditions.
Economists and market analysts expect the Reserve Bank of India to raise its repo rate by 25 basis points in October.
The repo rate has remained at 5.25% since the RBI’s last cut; the previous increase was in February 2023.
Renewed West Asia tensions, elevated crude prices and broader inflation pressures are cited as reasons for a possible hike.
Some market participants expect another 25-basis-point increase in December if crude prices remain elevated.
Economists differ on the outlook: some see a shallow tightening cycle, while others expect inflation and growth forecasts to be revised.
- Who
- The Reserve Bank of India, with economists and market analysts assessing its likely decision.
- What
- The RBI is expected by many analysts to raise the policy repo rate by 25 basis points.
- Where
- India.
- When
- October; some market participants also anticipate a possible increase in December.
- Why
- Renewed West Asia tensions, elevated crude and commodity prices, and broadening inflation pressures have increased concerns about inflation.
Reasons to Tighten
Reasons for Caution
Inflation and interest rates
Reasons to Tighten
Economists cite rising core and food inflation, higher energy costs, and global monetary tightening as reasons the RBI may raise rates.
Reasons for Caution
Some economists caution that a tightening cycle may remain shallow if growth moderates and higher borrowing costs weigh on leveraged households and capital expenditure.
Domestic policy versus global rate moves
Reasons to Tighten
Higher crude prices and global tightening add to the case for an RBI hike.
Reasons for Caution
Avinash Agarwal said the RBI is unlikely to mirror the US Federal Reserve and will base policy on domestic inflation, growth, liquidity and financial stability.
Key facts
- Current repo rate
- 5.25%
- Expected October move
- A 25-basis-point increase, according to economists and market analysts cited in the article
- Potential December move
- Some market participants expect a second 25-basis-point increase if crude prices remain elevated
- RBI FY27 inflation projection
- An average of 5%, near the upper end of the 2–6% tolerance band
- RBI FY27 growth projection
- 6.7%; DBS Bank economist Radhika Rao expects a revision to above 7%
- Oil-price concern
- The article cites crude above $100 a barrel as a possible reason for higher fuel prices and an inflation forecast revision
- Previous repo-rate increase
- February 2023, when the RBI raised the rate by 25 basis points to 6.5%
Quotes
Dipti Deshpande
Principal economist at Crisil
“The minutes of the August meeting of the Monetary Policy Committee indicated nervousness about the inflation dynamics and called for cautious monitoring of the inflation trajectory for signs of emergence of second-round impact.”
telegraphindia.com
“The RBI is unlikely to mirror the US Federal Reserve rate path. Any policy action will be based on domestic inflation, growth, liquidity and financial stability.”
telegraphindia.com
Sources
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