RBI Poised To Raise Rates Aggressively After a String of Hawkish Minutes

Reserve Bank of India

The Reserve Bank of India is poised to tighten policy forcefully at its next meeting, after rate setters pushed for front-loading hikes amid a worsening inflation forecast in the minutes of its off-cycle policy review earlier this month.

The RBI is expected to hike rates by as much as 50 basis points when it meets June 6-8, according to economists at Nomura Holdings Inc., Barclays Plc, and Deutsche Bank AG. The minutes, according to Citigroup Inc., indicate the central bank’s “strong hawkish determination” to drive inflation back to its target range of 2-6 percent.

Nomura economists Sonal Varma and Aurodeep Nandi said in a note Wednesday, upping their projection for a June boost to 50 basis points from 35 basis points.

Food, fuel, and fertilizer costs rose due to inflationary pressures exacerbated by supply-chain disruptions caused by the war. In April, retail inflation touched an eight-year high, while wholesale prices surged at the quickest rate in three decades.

Deutsche Bank economist Kaushik Das said that there is a “high risk” that inflation would continue above 7% for the remainder of fiscal 2022-23, prompting the RBI to raise rates by 50 basis points in June and 25 basis points in August.

During the meeting, monetary officials asked for a reversal of the pandemic-era adjustments, according to the minutes issued Wednesday by the RBI. External member Jayanth Rama Varma advocated for a rate hike of more than 100 basis points to be “taken out very soon,” while Ashima Goyal preferred rate hikes to be front-loaded.

According to Naveen Singh, head of trading at ICICI Securities Primary Dealership Ltd, swaps are pricing in a 60 basis point increase in June, followed by another 50 basis points and 60 basis points in the next two meetings.

Read More:

Sri Lanka unable to pay a single ship’s fuel