RBI hikes repo rates to counter the rising inflación, analysts see more tightening to come

Sep 30, 2022, 06:00 pm

The Reserve Bank of India (RBI) today raised its benchmark repo rate by 50 basis points. This is a fourth straight increase done to overcome inflation and analysts claimed that further tightening is on the cards.

The monetary policy committee (MPC), comprising of three members from the RBI and three external members, raised the key lending rate or the repo rate to 5.90% with five out of the six voting in favour of the hike.

The RBI has now raised rates by a total 190 basis points since its first unscheduled mid-meeting hike in May but inflation continues to remain stubbornly high - a phenomenon that is affecting much of the global economy.

"The inflation trajectory remains clouded with uncertainties arising from continuing geopolitical tensions and nervous global financial market sentiments," Governor Shaktikanta Das said in his address accompanying the MPC's decision.

"In this backdrop, MPC was of the view that persistence of high inflation, necessitates further calibrated withdrawal of monetary accommodation to restrain broadening of price pressures, anchor inflation expectations and contain the second round effects," he said.

The MPC also was of the view the current policy rate, adjusted for inflation, was still below 2019 levels

Most economists expect further tightening, and several predicted the terminal rate at 6.5%, suggesting another 60 bps of rate hikes.