RBI may hike 25-50 basis points

The Reserve Bank of India’s (RBI) rate-setting committee is likely to hike 25-50 basis points in repo rate in the monetary policy meeting to be held between Aug.3-5, according to the estimates of various fund managers and economists.

Economist and fund managers are of the mix view on the policy stance. Few are expecting stance will be change to ‘Neutral’, while some says ‘Withdraw of accommodative stance could persist’.

“We expect 40-50 bps hike in repo rate in August policy review. Withdraw of accommodative stance could persist,” said Vivek Kumar, Economist, QuantEco Research.

In last two policies, the central bank has hiked the rate by a cumulative of 90 basis points in May and June, due to high inflation, which was breaching RBI’s upper tolerance band for the consecutive months.

“25-35 bps of repo rate hike. Stance may switch to neutral. Guidance may be somewhat more comforting than previous policy given some correction in commodity prices and range bound crude oil prices,” said Mahendra Jajoo, CIO, Fixed Income at Mirae Asset Investment Managers.

On the inflation front, Upasna Bhardwaj, Chief Economist at Kotak Mahindra Bank, said risks to domestic inflation remain on the upside in case of continued pass-through of high input prices, pass-through of higher crude prices to domestic pump prices, and higher food prices due to weak monsoon or lower acreage.

She also added that geopolitical tensions and implications for energy prices will remain a risk for inflation. Along with inflation, the RBI will be mindful of the external sector imbalances too. Trade deficit can remain wide in case of a sharper fall in exports due to global demand slowdown while imports remain sticky.

While, Pankaj Pathak, Fund Manager at Quantum Mutual Fund expect the RBI’s commentary to soften a bit with an acknowledgement that inflation risks are receding.