RBI may go for another 35-50 bps rate hike: Experts

Mumbai: With the price index surprising on the upside in August, many analysts have pencilled in a higher inflation print in September as well and accordingly expect the central bank to frontload policy rate hikes, delivering another 35 to 50 bps later this month.

Confounding the worries on the inflation front, retail inflation accelerated to 7 per cent on-year in August from 6.7 per cent in the previous month - staying above the upper tolerance limit of the central bank for all the eight months of 2022. The higher than expected August inflation print was driven by food prices primarily in rural areas which came in at 7.2 per cent as against 6.7 per cent in urban areas.

The rate-setting panel has increased the policy repo rate by 140 bps to 5.4 per cent since May with the last being a 50 bps increase in the August review. Yet real interest rates continue to be negative as inflation continues to stay above 6 per cent. According to Tanvee Gupta-Jain, the India chief economist at the Swiss brokerage UBS Securities, considering the base effect, inflation print for September is also likely to remain elevated around the August levels before moderating meaningfully from October onwards.

This will have the RBI-led monetary policy committee front-loading the tightening cycle and deliver another 35 bps in the September 30 policy review. For the full year FY23, the brokerage continues to expect retail inflation to average at 6.7 per cent. Accordingly, she says in their base case, they continue to expect the monetary policy committee to front-load the rate hike cycle and raise the repo rate by another 35 bps in the September review.