Paying loan EMIs? Know how much more could RBI raise interest rates this year

The Reserve Bank of India (RBI) raised its key interest rate by 50 bps to 4.90% on Wednesday in an attempt to cool persistently high inflation. The RBI has also revised its FY23 inflation forecast by 100 bps higher to 6.7%, while leaving its 23rd year GDP forecast unchanged at 7.2%.

Central bank pledges to pull back from ‘accommodative’ stance as it ramps up battle to tame prices already running above RBIthe band’s goals since the beginning of the year.

Banks have been raising lending rates since the RBI unexpectedly raised rates last month. During an out-of-cycle rate hike in May, the RBI raised the repo rate by 40 basis points to 4.4%, the first increase in borrowing rates since August 2018.

“Towards the end of the term structure in the money market, interest rates on bills, commercial paper (CP) and certificates of deposit (CD) for 91 days have increased after the rate hike in May. Yields on AAA-rated 5-year corporate bonds have also increased. The increase in interest rates also caused an upward adjustment of the standard lending rates of banks. Banks’ term deposit interest rates have increased and will provide a stable source of capital amid growing credit demand,” the head of RBI said in a statement.

Even after two consecutive increases, the repo rate remains below pre-pandemic levels. In the future, the market is expecting the RBI to bring the policy rate down to at least the level of stock while controlling excess liquidity of the system.

“Posting an announcement of an out-of-cycle rate hike in May 2022, paving the way for a series of rate hikes in subsequent meetings, the RBI raised the repo rate to 50 bps. The MPC has decided to focus on corrected accommodation recovery while supporting growth. We believe the market has cut interest rates to 40-50 basis points and the key thing to watch is for commentary on inflation. Naveen Kulkarni, Chief Investment Officer, Axis Securities, said we could see another rate hike, possibly with a similar quantum level, in the next monetary policy aimed at managing pressures. inflationary.

The tone of policy continues to be hawkish and therefore the RBI is expected to continue to raise the repo rate to ensure a neutral to positive real policy rate.

“The 50 bps repo rate hike comes from a sustained increase in inflation and continued upside risks. As inflation is expected to remain above 6% through the end of Q3 2015, the RBI must take action first. Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank, said we will continue to see another 60-85 basis point rally for the remainder of FY23 to manage inflation expectations. broadcast.

“As the RBI continues to forecast strong growth, it will most likely increase by another 25 percentage points on Aug. 4 before pausing. We fear that growth could decelerate severely in H2FY23 and FY24 after such a plunge, said Nikhil Gupta, Chief Economist, Motilal Oswal.

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