Will the RBI raise the repo rate in April 2023?
The Reserve Bank of India (RBI) may raise its benchmark lending rate again in April 2023, after inflation stayed much over its acceptable limit in February 2023. The next fiscal policy meeting of the RBI MPC is set for April 6, 2023.
The apex bank stated as much in a bulletin issued on March 22, 2023. The RBI expressed worry about ongoing price increases, stating that consumer price inflation held steady and overall inflation remained to defy the clear softening of input prices.
Retail inflation in February was 6.44%, down from 6.52% in January, according to official figures issued on March 13, 2023. This means that prices for various products and services remained high in the majority of categories. Also, it indicates that for nine months of the current fiscal year, the CPI-based inflation rate has exceeded the RBI’s medium-term objective of 6%.
“We believe the forthcoming meeting in April will be another 25-basis-point raise, but we believe the monetary policy committee will be split on the route forward since supply shock cannot be dealt with just by monetary policy…
“We need to see government help in terms of administrative measures and some fiscal support,” Radhika Rao, executive director and senior economist at DBS Group Research, stated on March 13, 2023, during an online discussion on growth resilience and sticky inflation.
“The repo rate has risen from 4% to 6.5% in the recent year.” This load is being borne completely by developers, resulting in additional financial pressure and rising expenditures,” it stated in a statement made on March 30, 2023.
Over two-thirds of those polled in a February 14-21 Reuters survey predicted the RBI to hike rates to a seven-year high of 6.75% in April, then hold the rate constant for the rest of 2023. Since May 2022, India’s central bank has raised the repo rate, at which it loans cash to Indian financial institutions, by 250 basis points (bps). One percentage point is equivalent to one hundred basis points. If the RBI raises the repo rate by 25 basis points, it will be 6.75%, up from 6.50% now.
Quite apart from the worries over inflation, global brokerage company Nomura expects the RBI to hold rates steady at its April meeting. The agency’s forecast is based on a moderate future inflation profile, lagging monetary policy impacts, weakening economic forecasts, and a poorer domestic demand outlook in FY24.
“As both GDP and inflation surprise lower this year, we anticipate a rate-cutting cycle is in the cards.” “We retain our forecast of 75 basis points of cumulative rate decreases beginning in October 2023,” said Nomura analyst Sonal Varma. Industry believes that the banking regulator should stop in order to facilitate growth.”Given the joint effort on interest rates that we witnessed throughout the world during the epidemic, we feel it is now time to divorce from that.” Inflation is beginning to stabilise. So
In an interview with Business Standard, CII president Sanjiv Bajaj said, “We hope the RBI would choose for a pause on rate rises so that it sends a very clear signal that it is now our time to expand.” Meanwhile, the Confederation of Real Estate Developers’ Association of India (Credai) has urged the RBI to keep the benchmark lending rate unchanged, citing financial challenges faced by developers as well as the potential impact on housing sales due to the resulting rise in prices and home loan interest.
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