RBI Hikes Interest Rates for First Time in 7 Months Amid Rising Inflation

Economists are largely expecting a monetary policy committee meeting in October to result in a rate hike. With many predicting a 25 basis point increase. This would mark the first such move since February 2023, when the RBI adjusted interest rates to combat post-pandemic inflation spikes.

During the second quarter, average inflation is forecasted to be around 20 basis points higher than RBI's estimate of 4.7%. According to Kotak Mahindra Bank chief economist Upasana Bhardwaj. SBI chief economic adviser Soumya Kanti Ghosh cautioned that inflation is becoming increasingly generalised.

Experts are urging the RBI to take a proactive stance. With Crisil chief economist D K Joshi predicting a tightening cycle will soon begin as the liquidity situation remains unstable.

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ICRA Ratings chief economist Aditi Nayar believes if crude oil prices continue to rise in the lead-up to the upcoming MPC meeting. The expected rate hike could be advanced to October.

Emkay Global's Madhavi Arora and ICICI Bank are forecasting a 50-75 basis point increase, depending on how energy prices evolve. Meanwhile, India Ratings chief economist D K Pant believes there is a strong case for the RBI to raise interest rates, despite potential risks in October.

According to Pant, the liquidity situation will be a key indicator in the upcoming meeting, rather than headline inflation figures. This suggests that the RBI may maintain the status quo, at least for now.

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The consensus among economists is clear: a rate hike is on the horizon. With interest rates set to rise for the first time in seven months. Experts are predicting a 25 basis point increase in the repo rate.

Forecasts indicate that inflation will continue to rise.

The timing and magnitude of the rate hike remain uncertain. However, one thing is clear: the liquidity situation will play a important step in determining the RBI's decision.