RBI set for fourth straight rate hike

On the lines of the US Federal Reserve, the Reserve Bank of India (RBI) is set to raise interest rate for the fourth time in a row to check rising inflation.

The RBI has already since May raised the repo rate by 140 basis points. Analysts feel it may again go for a 50-bps increase to take it to a three-year high of 5.9 per cent.

The central bank in May raised the repo rate by 40 bps, while in June and August, it made a revision by hiking it 50 bps each, taking the present rate at 5.4 per cent.

The Monetary Policy Committee (MPC) will start its deliberations on Wednesday. The decision on rate hike would be announced on Friday. In August, the consumer price index based retail inflation firmed up to 7 per cent, which started showing signs of moderation since May. While framing its bi-monthly monetary policy, RBI takes into account retail inflation.

Federal Reserve increased 75 basis points in September to take the target range to 3 – 3.25 per cent.

Following this, the Bank of England increased the key base rate to 2.25 per cent, considered to be the highest since 2008. The EU has also gone for rate hikes to tame inflation.

Union government has requested the RBI to keep the retail inflation at check and see it does not cross 4 per cent, with a margin of 2 per cent on either side. After the fall from historical highs in June, global commodity prices have remained volatile.

SBI in its recent report signaled a 50 basis points hike in repo rate by RBI and expects the peak repo rate in the cycle at 6.25 per cent. “A final rate hike of 35 bps is expected in December policy,” it said.