The Reserve Bank of India’s rate-setting board will raise 0.35% to the key repo rate at its meeting next week, a US broker said on Wednesday.
Bofa Securities said in a report published ahead of the Monetary Policy Committee (MPC) resolution to be published on Aug.
The RBI raised rates by 0.90% cumulatively in two tightening moves in May and June, in response to the fleeing headline inflation, which consistently exceeded the top of the target set by the central bank. set up for several months.
Referring to policy actions since April, when the RBI introduced the permanent deposit facility, the broker said the central bank has effectively raised interest rates to 1.30%.
“In our base case, we now see the RBI MPC policy repo rate increase by 0.35%, to 5.25% (higher than pre-pandemic levels), with a change of stance to tightening correction from housing withdrawal,” the report said.
The brokerage expects MPC to maintain its 23-year Consumer Price Inflation (CPI) forecast and real GDP growth at 6.7% and 7.2%, respectively.
Last week, RBI Governor Shaktikanta Das said key inflation, at 7.04 percent in April, appeared to have peaked.
The MPC could take a more aggressive approach and deliver a 0.50% rate hike as it did in June, entering a number of developed markets and regional central banks already sending signals stronger.
On the other hand, a 0.25% increase cannot be ruled out either, the brokerage said, explaining that the MPC can acknowledge that inflation has peaked and that there are downside risks to its estimate. them, which will be measured increase from here on.