Reserve Bank can hike repo rate to 6% by December, say economists

The RBI rate hike expectations come despite economists predicting a moderation in inflation due to slump in global commodities and easing supply chain bottlenecks

Economists see India’s central bank raising interest rates through December, taking the repurchase rate to 6% by the end of this year, the latest Bloomberg survey shows.

After cumulative hikes of 140 basis points in three moves since May, economists pencil in another 35 basis-point hike in the September monetary policy review, and a quarter-percentage point increase in December, bringing the main interest rate to 6%. A previous survey estimated the repo rate to reach 6% by the end of June 2023. 

The rate hike expectations come despite economists predicting a moderation in inflation due to slump in global commodities and easing supply chain bottlenecks. 

Consumer prices are seen easing to 6.6% from 6.76% for the financial year ending March 2023, though still above the central bank’s 2%-6% target range. Wholesale prices are seen easing to 10.95%, before moderating to low single digits in the next fiscal year through March 2024, the survey showed.

Meanwhile, data due Wednesday is likely to show gross domestic product rising 15.3% in the three months to June from a year ago, while gross value-added may rise 14%. The growth, however, may moderate to the sub-6.5% level from July-September quarter onward, weighed down by global concerns, the same survey showed.

“India is not immune to a US recession,” said Teresa John, economist at Nirmal Bang Equities. “Stable domestic fundamentals in terms of strong financial sector and non-financial sector balance sheets, high foreign exchange reserve and some amount of counter-cyclical fiscal policy ahead of elections in FY 2024 will limit the growth slowdown.”