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RBI MPC Meet Starts Today; All Eyes on Another Rate Hike, FY23 Inflation Forecast


With the three-day meet of the RBI’s Monetary Policy Committee (MPC) to review the interest rates in the country has started on Monday, all eyes are on by how much will the Reserve Bank of India (RBI) raise interest rates this time as economists have given a wide range of expectations ranging from 25 basis points to 50 basis points. Experts say apart from rate hike action, the central bank’s projections on inflation and growth for this year will also be interesting to watch. The policy decision of the MPC will be announced on the last day of the meeting, June 8.

Inflation Projection

In its monetary policy review in April, the Reserve Bank of India (RBI) revised upwards its retail inflation forecast to 5.7 per cent for the current financial year 2022-23, compared with the 4.5 per cent projected earlier. Its Governor Shaktikanta Das had said the central bank has upped its CPI inflation projection as “heightened geopolitical tensions since end-February have, however, upended the earlier narrative and considerably clouded the inflation outlook for the year”.

Suvodeep Rakshit, senior economist at Kotak Institutional Equities, said, “The RBI will now revise its inflation estimates upwards, possibly indicating inflation remaining close to 7 per cent for the most part of CY2022. We expect the RBI to continue focusing on taking inflation and signaling its intent to continue raising rate and normalising liquidity, while not entirely losing its on growth given the uneven nature of growth recovery.”
Growth Forecast

The central bank had lowered its GDP forecast to 7.2 per cent for the current financial year 2022-23 in the April monetary policy, compared with the 7.8 projected in the previous bi-monthly policy statement in February. Das had said the real GDP is projected to grow 16.2 per cent in the first quarter and 6.2 per cent in the second quarter, 4.1 per cent in Q3 and four per cent in the fourth quarter of FY23.

Madan Sabnavis, chief economist of Bank of Baroda, has said the credit policy to be announced will be important from the point of view of not just rate action but also the RBIs thoughts on growth and inflation.

BofA Securities said, “We see the RBI MPC revise up their inflation forecast (and) retain growth estimate.”
Rate Hike in Policy Review

In the ongoing bi-monthly monetary policy review, the MPC is expected to raise rates anywhere between 25 basis points and 50 basis points, as per experts. Crisil Chief Economist D K Joshi expects the repo rate to go up by 50 basis points in the upcoming MPC policy review, while Bank of Baroda Chief Economist Madan Sabnavis said the MPC may decide to increase the rate by 25-35 basis points.

Vinod Nair, head (research) at Geojit Financial Services, expects the RBI to increase the key repo rate by 25-35 basis points.

The retail inflation in April stood at an eight-year high of 7.79 per cent, forcing the RBI to hike interest rates in an off-cycle monetary policy in May.

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