RBI to hike interest rates by 50 basis points as inflation rises


After statistics revealed that inflation increased further over the central bank’s tolerance level in August, economists predicted that the Reserve Bank of India will increase interest rates by another 50 basis points this month.

According to figures released on Monday, India’s retail inflation rate increased to 7.0 per cent in August from 6.71 per cent the previous month. The August reading was somewhat higher than the 6.9 per cent analysts surveyed by Reuters had predicted. The increase in the headline rate was influenced by higher food inflation.

“From a policy perspective, another month of above-target inflation clears the path for further monetary tightening at the next MPC (Monetary Policy Committee) meeting on 30 September,” said Rahul Bajoria, chief India economist at Barclays Bank.

The RBI will continue to place a strong emphasis on controlling inflation due to the relatively optimistic economic forecast, strong credit expansion, and sticky core inflation, according to a report by Bajoria.

In the two meetings that come after the one in September, according to Shah, the RBI will move to 25 basis point increases, bringing the repo rate to 6.40 per cent in the first quarter of 2019.

According to IDFC First Bank, the unpredictability of the monsoon rains has caused a tendency toward increased food costs in the first two weeks of September. Because of this, it claimed, the preliminary estimate of CPI inflation for September is tracking at a “uncomfortable” 7.3 per cent. For this fiscal year, the bank anticipates an average inflation rate of 6.7 per cent.

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