RBI may increase repo rate by up to 35 bps: SBI report

 

RBI may increase the repo rate again! According to the report of State Bank of India (SBI)

Amid signs of softening in retail inflation, the Reserve Bank of India (RBI) may opt for a lower rate hike of 35 bps in lending rates in its monetary policy review to be held on Wednesday.

Repo rate is the rate at which RBI lends money to all commercial banks. An increase in the repo rate means an increase in lending and deposit rates.

So, if you are worried about your loans getting costlier, technically you are not wrong as the central bank may hike the repo rate again in December, according to the State Bank of India (SBI). But, on the other hand, it is good news for fixed deposit investors as banks will increase the interest on deposit rates after the repo rate hike by RBI.

"We expect the RBI to increase rates by a smaller magnitude in the December policy linked to central banks of emerging markets and the overall rate setting tone.

• 35 bps hike in repo rate looks imminent

• We believe this is 6.25%, this may be the final rate for now...," SBI said in its latest research report.

The SBI report also said that the current government cash balance may force the RBI to change its neutral stance purely on technical grounds.


"If the current government's cash balance is any indication .. ₹1 trillion ... to neutral purely on technical grounds may compel the RBI to change stance .. however ... given that the budget Government cash balances unlikely to decline further as fiscal deficit nears in FY23 and government cognizance and capital inflows continue....and US labor market to raise rates beyond February 23 to raise Fed's hand The forcing continues to be bearish, it may not be yet for the RBI to change stance as it may confuse the market... The good thing is that with capital inflows picking up sharply in November, the RBI $ may provide unexpected buffer of rupee injection in lieu of purchase/building of reserves by RBI," the SBI report said.

The RBI will present its next bi-monthly policy review on December 7 at the end of the three-day meeting of the Monetary Policy Committee (MPC) beginning Monday.

Since May, the Reserve Bank has raised repo or benchmark lending rates by 190 basis points to calm inflation, which has remained above its comfort level of 6 per cent since January.