New Delhi, Oct 9 — The Reserve Bank of India (RBI) should go for an off-cycle 50 basis points hike sooner rather than later and widen the interest rate corridor as the world is caught in a tailspin with emerging markets at receiving end, a report said on Friday.
While recent action on rate front by RBI was welcome, its effect had already been priced in by markets and thus real impact remained absent on either yields or exchange rate front, SBI Research said.
It also said widening of interest rate corridor could be most effective as tested in past times of turbulence in 2013, 2020 and 2022 over which the central bank has exclusive authority by dint of regulatory prescriptions.
Moreover, the central bank may change corridor width from the current 50 bps to higher levels for limited period without disturbing repo rate at 5.5 per cent.
Regulation regarding change in policy corridor is clear that while MPC determines policy rate required to achieve inflation target, day-to-day liquidity management is solely in domain of RBI, the report said, highlighting RBI's report.
However, the government also needs to support RBI by relooking at enhancing flows of patient capital in debt as also equities tweaking tax and capital gains structure, it said.
SBI Research said it continues to believe a larger rate hike in December policy as growth will continue to be strong and top 7.5 per cent again.
On the exchange rate front, the report said NDF markets are reflecting mayhem as shorter end of curve is vaulting through roof, annualised cost at times double that of longer end, with action concentrating around 1-3 months.
Toolkit needs to be fine-tuned where exporters need to increasingly and optimally match proceeds and remittances with importers' needs and hedging patterns, it said.
The generous timelines allowed for bringing export proceeds of 15 months cannot be carte blanche for all and timeline may be reduced to 6 months as norm with extensions on case-to-case basis, SBI Research said.