RBI to hike rates by 0.35%-0.5% at Aug 5 review: Axis Bank chief economist

The Reserve Bank's rate setting panel will hike the key repo rate by 0.35-0.50 per cent at the next week's review meeting, Axis Bank chief economist Saugata Bhattacharya said on Thursday.

Reserve Bank of India, RBI
Press Trust of India Mumbai
3 min read Last Updated : Jul 28 2022 | 5:17 PM IST

The Reserve Bank's rate setting panel will hike the key repo rate by 0.35-0.50 per cent at the next week's review meeting, Axis Bank chief economist Saugata Bhattacharya said on Thursday.

A hike of such a quantum will take the repo rate beyond the 5.15 per cent level, at which the RBI had begun the ultra-accommodative measures in the face of the COVID-19 pandemic, he told reporters.

It can be noted that the monetary policy committee (MPC) has hiked rates in two consecutive moves in May and June by a cumulative 0.90 per cent, taking the repo rate at which it lends to the system to 4.90 per cent, in a bid to contain inflation.

Bhattacharya said the MPC will go into the internal surveys like household inflation expectations and consumer confidence while deciding the quantum of the rate hike.

He said the rate hike will be both an attempt to stem inflation expectations, and also one part of it will be a frontloading of actions.

A majority of developed world central banks like the US Fed, which hiked rates by 0.75 per cent and the European Central Bank have also adopted a frontloading strategy because it ups possibilities of a soft landing for the economy, he said.

Bhattacharya said the RBI is likely to continue the tightening after the next week's hike as well, and expects the repo rate to be at 5.75 per cent at the end of this fiscal.

He said the headline inflation will continue to breach the 6 per cent threshold for many more months, and is likely to cool-off after spiking in September on a low base.

The average CPI for FY23 will be 6.7 per cent, the chief economist said, adding it will come below the 6 per cent mark only in March.

He said the ongoing depreciation in the currency is having an impact on inflation given the import reliance, and also added that off-late, there has been some softening of the commodity prices.

Bhattacharya also appreciated the RBI's handling of the pressures on the currency by intervening in different ways to ensure a smooth movement of the currency.

The government has been restrained in spending lately, Bhattacharya said, terming it as a "puzzling" aspect which needs to be watched given the growth needs of the economy.

There is likely to be significant fiscal slippage and the fiscal deficit will come at over 9.7 per cent for FY23, he said, adding that the receipts from 5G auction front will not help matters as the actual payments are staggered over multiple years.

On the liquidity front, he said the surplus will come down to a manageable Rs 2-2.5 lakh crore by September if the government spending goes up, and may reach neutral by December, he said.

The bank expects GDP growth to come at 7.1 per cent for FY23, he said. The wage hike in the IT industry may impact the growth as the profitability for IT companies goes down, he warned.

(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

Subscribe to Business Standard digital and get complimentary access to The New York Times

Quarterly Starter

₹900

3 Months

₹300/Month

SAVE 25%

Smart Essential

₹2,700

1 Year

₹225/Month

Save 46%

Super Saver

₹3,900

2 Years

₹162/Month

Subscribe

Renews automatically, cancel anytime

Here’s what’s included in our digital subscription plans

Access to Exclusive Premium Stories Online

  • Over 30 behind the paywall stories daily, handpicked by our editors for subscribers

Complimentary Access to The New York Times

  • News, Games, Cooking, Audio, Wirecutter & The Athletic

Business Standard Epaper

  • Digital replica of our daily newspaper — with options to read, save, and share

Curated Newsletters

  • Insights on markets, finance, politics, tech, and more delivered to your inbox

Market Analysis & Investment Insights

  • In-depth market analysis & insights with access to The Smart Investor

Archives

  • Repository of articles and publications dating back to 1997

Ad-free Reading

  • Uninterrupted reading experience with no advertisements

Seamless Access Across All Devices

  • Access Business Standard across devices — mobile, tablet, or PC, via web or app

More From This Section

Topics :Reserve Bank of IndiaRBI repo ratePolicy repo rate

First Published: Jul 28 2022 | 5:17 PM IST

Next Story