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RBI will increase the repo rate by 25 bps in February. FD rates likely to become more attractive

 




• According to a January 13-27 Reuters poll, more than three-quarters of economists, 40 out of 52, expected the RBI to hike its key repo rate by 25 bps to 6.50%.

The Reserve Bank of India (RBI) is expected to raise its interest rate by a modest 25 basis points (bps) to 6.50% in its meeting after the Union Budget 2023 on February 1, a Reuters poll of economists found.

More than three-quarters of economists, 40 out of 52, expected the RBI to hike its key repo rate by 25 bps to 6.50%, according to a January 13-27 Reuters poll. The remaining 12 predict no changes at the February 8 meeting.

The median forecast was for rates to remain at 6.50% through the end of 2023.

Upasana said, "They (RBI) need to stop at some point, to see what is the impact of the previous monetary tightening on growth and inflation overall. So I believe it is time for them to stop after 6.50%." is not premature." Bhardwaj, chief economist at Kotak Mahindra Bank, told Reuters.

"That doesn't mean they'll let the inflationary focus off guard."

With the December rate hike, the policy repo rate has risen to 225 bps so far in FY23. Currently the repo rate is 6.25 percent. For FY23, the RBI's first rate hike was 40 bps in May, followed by three consecutive rate hikes of 50 bps each between June and October, and then a December policy easing of 35 bps. Another rate hike by RBI will make fixed deposits attractive The central bank is expected to raise the repo rate in February. Hence, depositors will have one more reason to cheer as when the RBI increases the policy repo rate, both fixed deposit and lending rates are likely to increase as well. Banks have been aggressively raising their FD rates since May in line with the outcome of the RBI policy, making this investment option already attractive.

However, this time, the transition of the 25 bps repo rate hike to FD rates is expected to be at a slower pace.

There will be a keen eye on how much the banks give the benefit of the increase in the policy rate in February on their FDs.

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