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RBI more likely to raise key hedging charge 25-35 basis points to check inflation: Consultants – Reuters

MUMBAI: A few days after the Fed raised the interest rate, the RBI could begin its third straight insurance cost hike of 25 to 35 basis points to check excessive retail price inflation, experts said.
The central financial institution has already announced the phasing out of its dovish stance on financial hedging.
The Reserve Financial institutionThe pricing panel of — Financial Coverage Committee – will meet on August 3 for 3 days to deliberate on the current economic situation and announce its bi-monthly report on Friday.
With retail price inflation above 6% for six months, the RBI had raised short-term borrowing (repo) charges twice – by 40 fundamental points in May and 50 fundamental points in June.
The prevailing repo fee of 4.9% remains below the pre-Covid stage of 5.15%. The central financial institution has cut referral fees sharply in 2020 to deal with the disaster created by the pandemic outbreak.
The consultants are of the view that the Reserve Bank of India (RBI) would increase the referral fees at least at the pre-pandemic stage this week and even more in the following months.
“We now look to the RBI MPC to raise the hedge repo fee by 35 basis points on August 5 and change its stance in favor of a calibrated tightening,” the BofA World Analysis report said.
The opportunity for an aggressive 50 basis point hike and a measured 25 basis point hike cannot both be ruled out, he added.
An analyst report from Baroda financial institution said that while the Federal Reserve increased velocity by 225 basis points during CY22, the RBI increased repo fees by 90 basis points . An aggressive fee hike by the Fed is fueling expectations that the RBI could charge up its fee hikes.
Nevertheless, the circumstances in India do not warrant an aggressive stance by the RBI, he added.
“…absent any contemporaneous shocks, India’s inflation path is more likely to move in line with the RBI’s projections. Therefore, we hope that the RBI could increase the fees by just 25 basis points on August 22, followed by another fee hike of 25 basis points over the following two conferences,” he said.
The federal government has instructed the reserve financial institution to ensure that inflation based on the customer value index remains at 4% with a 2% margin on both counts.
Dhruv Agarwala, Group CEO,, said while other banking regulators around the world, including the US Fed, are aggressively raising rates, the situation in India does not yet justify this type of move. strategy.
“In our estimate, it should be in the range of 20 to 25 fundamental points,” he said.
In a report, Radhika Rao, government director and senior economist at DBS Group Research, said RBI’s financial hedging committee is expected to remain focused on price stability over the next two quarters.
Taking into account the peak of inflation in the July-September quarter, “we now expect a 35 basis point hike in August, followed by three basis points of 25 basis points for terminal dues to spread out to 6% by the end of FY23,” she said.
Retail inflation based on the Shopper Worth Index (CPI), in which RBI factors in while arriving at its financial hedge, has been above 6% since January 2022. It was 7.01% in June. PTI NKD CS