New Delhi, Oct 7 — The Reserve Bank of India’s Monetary Policy Committee (MPC) -- led by Governor Sanjay Malhotra -- is set to announce its bi-monthly interest rate decision on Wednesday amid challenging factors, including rising inflation and crude oil prices above $100 a barrel driven by Middle East tensions.
The six-member committee will conclude its three-day review against a backdrop of escalating domestic inflation and shifting global macroeconomic pressures.
Moreover, experts and economists have expected an increase in the repo rate for the first time since February 2023.
However, the central bank has kept the repo rate unchanged at 5.25 per cent.
Economists expect the RBI to begin a rate-hiking cycle, bringing forward their earlier call for a December hike.
According to Bank of America (BofA), a 25 bps hike rather than December as previously forecast is possible.
“After almost two years of monetary accommodation, the RBI appears set to take early steps to start withdrawing the policy support in October MPC. As such, we now believe that the RBI will go ahead with a rate hike of 25 bp in October MPC,” said BofA.
Similarly, SBI Research said the balance of risks has tilted decisively toward a 25-bps rate hike by the RBI at this juncture, as broadening inflationary pressures, worsening global macros, evolving liquidity conditions, and a renewed global repricing of risks make the case for pre-emptive action stronger.
"It would be prudent for us to act pre-emptively rather than be behind the curve," said economists at SBI Research.
Additionally, CPI inflation rose to 4.82 per cent in August from 4.45 per cent in July. While strong El Nino conditions and below-normal October rainfall could pose further risks to Rabi output.
In addition, rising crude oil prices, inflation and higher bond yields globally have narrowed the Reserve Bank of India’s room to hold rates unchanged.