Inflation a concern and 25 bps policy rate hike expected

Mumbai: With core inflation not subdued, the Reserve Bank of India’s (RBI) Monetary Policy Committee (MPC) increased the repo rate by 25 basis points (bps) to 6.5 per cent as per the general expectation of experts.

As a matter of fact, RBI Governor Shaktikanta Das, announcing the upward revision in the repo rate, said the outlook for inflation is mixed.

“While prospects for the rabi crop have improved, especially for wheat and oilseeds, risks from adverse weather events remain. The global commodity price outlook, including crude oil, is subject to uncertainties on demand prospects as well as from risks of supply disruptions due to geopolitical tensions. Commodity prices are expected to face upward pressures with the easing of Covid-related mobility restrictions in some parts of the world,” Das said.

The ongoing pass-through of input costs to output prices, especially in services, could continue to exert pressures on core inflation, he added.

Reacting to the repo rate increase, Ranjani Sinha, Chief Economist, CARE Ratings said that “While RBI has hiked the policy interest rate by 25 bps in line with market expectations, they have not indicated an end to rate hiking cycle.”

Suman Chowdhury, Chief Analytical Officer, Acuite Ratings & Research, said there is no indication of any pause in the rate hike and the likelihood of further moderate hikes in the repo rate remains, depending on the upcoming data prints.

Image courtesy of (File photo)

Share this post