RBI may hike repo rate again by 35 basis points, SBI Research says

The Reserve Bank of India (RBI) is likely to moderate the pace of interest rate hikes in its December policy starting Monday (December 5) because of softening inflation expectations both in India and abroad and signs of slower rate hikes in the US and concerns over a global economic downturn.

After three consecutive hikes of 50 basis points, the Reserve Bank of India (RBI) this time may go for a lower repo rate hike of 35 basis points at its upcoming bi-monthly monetary policy announcement on Wednesday.

“We expect the RBI to hike rates in smaller magnitude in December policy attuned to emerging market central banks and the overall rate-setting tone. With this, a 35-bps repo rate hike looks imminent. We believe at 6.25%, it could be the terminal rate for now…,” the latest SBI Research said.

Economic experts expect the MPC to hike the repo rate by 25-35 basis points (bps) with industry lobby body ASSOCHAM also urging the central bank to do the same.

If the current government cash balances are any indication, at ₹1 lakh crore, it might force RBI to change its stance to ‘neutral’, purely on technical grounds, says SBI Research.

Data released last week demonstrated that India’s economic growth for the September quarter slowed to 6.3 per cent from 8.4 per cent a year earlier and 13.5 per cent in the previous quarter, due to slower growth of the manufacturing and mining sectors.

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