The Reserve Bank of India (RBI) may increase the repo rate for the fourth time in a row to control inflation. For this, he can also take the opinion of the central banks of other countries including the US Federal Reserve.
RBI has increased the repo rate by 140 basis points (bps) since May. Experts say the central bank can now take it to a higher level (5.9 percent) in three years with an increase of 50 basis points.
The central bank had increased the repo rate by 40 basis points in May and by 50 basis points in June and August. It currently stands at 5.4 percent.
Consumer price-based (CPI) retail inflation, which started showing signs of moderation in May, rose again to 7 percent in August. The central bank takes into account retail inflation while formulating its bi-monthly monetary policy.
The RBI Governor-led Monetary Policy Committee (MCP) is scheduled to begin its three-day meeting on Wednesday. The decision of this meeting will be announced on Friday 30 September.
The US central bank, the Federal Reserve, recently announced a 0.75 percent increase in interest rates to control inflation. After the third consecutive hike, the bank's benchmark funds rate has increased from 3 percent to 3.25 percent. Central banks in Britain and the European Union have also raised rates to control inflation.
Madan Sabnavis, Chief Economist, Bank of Baroda, said inflation in India remains at a high of around 7 percent and is unlikely to come down anytime soon.
RBI has been tasked by the government to ensure that retail inflation remains at 4 percent. Dhruv Aggarwal, Group CEO, Housing.com, says that amid resilient economic expansion and strong credit growth, controlling inflation will continue to be the RBI's biggest concern.
Banks will also hike home loan interest rates due to any increase in rates, he said. But we think that it will not have much impact, as the demand for the property has not been strong. This demand will pick up further during this festive season.
ICRA's Chief Economist Aditi Nair also expects a 50 basis point increase from the Monetary Policy Committee in September 2022.
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