Reserve Bank likely to hike interest rates by at least 0.25 per cent, say analysts
Reuters
New Delhi: Reserve Bank of India (RBI) Governor Raghuram Rajan is likely to hike a key policy interest rate by at least 0.25 percent on Tuesday, analysts said. This will be the second increase in the repurchase or repo rate in nearly one-and-a-half months to curb inflation.
In his first policy review announced just a fortnight after he took charge Sep 4, Rajan had increased the repo rate by 0.25 percent to 7.5 percent, terming the inflationary situation “worrisome”.
Most analysts feel Rajan would opt for at least 0.25 percent hike in repo rate again Tuesday as fighting inflation remained his priority.
“We are expecting 25 basis points hike in repo rate and also 25 basis points reduction in MSF rate,” senior economist at Dun & Bradstreet India Arun Singh told IANS.
The RBI had cut the marginal standing facility (MSF) rate by 75 basis points or 0.75 percent to 9.5 percent in its previous policy review announced Sep 20. MSF is a window for banks to borrow from the RBI.
Arun Singh said in the growth versus inflation dilemma, Rajan seems to be giving priority to inflation control.
Chief economist of HDFC Bank Abheek Barua said the RBI would hike repo rate by 25 basis points to 7.75 percent, the peak level after which Rajan's predecessor Duvvuri Subbarao had started easing the rates.
Currently, the repo rate, the rate banks pay when they borrow money from the central bank to meet their short-term fund requirements, stands at 7.5 percent per annum.
Reverse repo rate, the interest rate that the RBI pays to commercial banks when they keep their surplus short-term funds with the central bank, is at 6.50 percent.
The central bank is also expected to hike the reverse repo rate by an equal measure to maintain a 100 basis points, or one percent, gap between the two rates, which has long been the default setting.
Chief economic adviser at State Bank of India Soumya Kanti Ghosh said 25 basis points hike in repo rate is expected, but the RBI might also surprise the markets by keeping it on hold.
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