The Reserve Bank of India may hike interest rates by 25 basis points next week and is unlikely to pause anytime soon in the face of elevated inflation, according to L&T Finance Holdings’s Group Chief Economist Rupa Rege Nisture. RBI has raised the policy rate by 250 bps since May 2022 to 6.5%, making it the most aggressive policy tightening cycle in a decade. Another 25 bps increase would take India’s repurchase rate to the highest since February 2016. The central bank will review rates on April 6.
“Inflation is way above the tolerance limit,” she told Bloomberg TV’s Haslinda Amin and Yvonne Man. “So at this juncture, a lot depends on how global central banks deal with their inflation problems, and that’s implication for emerging market economies like India.” Consumer prices rose 6.44% in February breaching the RBI’s target ceiling and bolstering chances of another rate increase in April. Core inflation, which strips out volatile food and fuel costs, stayed above the 6% mark for the 17th month in a row.
Watch: Rupa Rege Nistrure on expectations from RBI MPC meeting next week
Rate Hike Odds Rise as Inflation Breaches RBI’s Target Again
The impact of RBI’s monetary tightening has started showing its signs in some economic indicators as consumers in some sectors are holding back purchases. India’s economic growth unexpectedly slowed to 4.4% in the three months to December. Nisture said she doesn’t see a “drastic slowdown” in several sectors such as housing or consumer loans as a result of the rate increases. Housing demand is buoyant but there’s some unevenness as demand has started correcting in affordable homes while there’s growth in the mid-sized and luxury home loans, she added.