RBI to increase the rates in June with a faster tightening path likely on surging inflation: Report

The Reserve Bank of India will spike its repo rate in June and hike at a faster pace than predicted just a few weeks ago as a rise in inflation puts pressure on the central bank to act quicker, a Reuters poll showed.

Retail inflation accelerated to nearly 7% in March, above the 6% upper limit of the central bank’s targeted range, and will likely soar further as a spike in global energy prices since Russia’s invasion of Ukraine seeps into consumer prices.

The Monetary Policy Committee (MPC) kept its key rate at a record low 4.0% at its April meeting inspite of shifting its focus to inflation from growth.

But March’s 17-month-high inflation number leaves less space for the RBI other than hiking sooner rather than later, and all but three of 46 economists in an April 20-25 Reuters poll expected the RBI to raise the repo rate for the first time since 2018 in June.

While 42 expected a 25 basis point hike to 4.25%, only one predicted a 50 basis point hike.

“Given the elevated inflation trajectory and a very realistic chance of the MPC facing its first official “failure” of the monetary policy framework, the RBI will shift its stance to “neutral” in June and embark on a short rate hiking cycle,” said Rahul Bajoria, chief India economist at Barclays.