MUMBAI: The Reserve Bank of India (RBI) is likely to hike the policy repo rate by 35 basis points on Friday, but may also revise its inflation forecast upwards and growth forecast downwards, Sunidhi Securities said on Thursday.
“A shift to a slower pace of rate hike by RBI after an initial front-loading is our underlying expectation from August MPC Policy,” Siddharth Kothari, an economist with Sunidhi Securities said in a note.
The economist further expects the RBI to change its monetary policy stance from “withdrawal of accommodation” to “calibrated tightening” to indicate RBI will not be bound to increase rates at every meeting.
Market participants remain divided over the quantum of rate hike likely on Friday, with views widely split between 25 basis points and 50 basis points, according to a Reuters poll of economists.
The RBI has raised the repo rate by 90 basis points in two meetings to 4.90% since embarking on a tightening cycle at an unscheduled policy meeting in May, to curb inflationary pressures.
Sunidhi expects the central bank to raise its inflation forecast marginally by 20 basis points to 6.70% for this financial year ending in March, while cutting growth forecast by 40 bps to 6.80% from the current 7.2%.
Retail inflation has stayed above 7% for the last three months, but eased after hitting eight-year high of 7.79% in April.
“A slower pace of rate hikes hereon starting August could continue to act as a guiding force for anchoring inflation expectations with the objective of bringing in price stability without impinging on the growth drivers of the economy,” the economist added.
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