Key Points of RBI Interest Rate Hike Pause in April, SBI Prediction:
- SBI Research predicts that RBI will pause interest rate hike, with repo rate of 6.5% being the terminal rate for now.
- Repo rate is the interest rate at which the RBI lends money to commercial banks.
- Next monetary policy meeting is scheduled for the first week of April 2023.
- RBI had raised the repo rate by 25 basis points to 6.5% in February to keep inflation expectations anchored and strengthen growth prospects.
- SBI Research suggests RBI has enough reasons to pause repo rate hike due to concerns over affordable housing loan market and financial stability.
- Retail inflation in India fell marginally but remained above RBI’s 6% upper tolerance band for the second straight month in February 2023.
- US monetary policy committee is also on an interest hike spree to fight inflation, with a recent 25 basis points hike to over a 15-year high of 4.75-5.0%.
- A dovish Fed means a soft dollar and thus lower depreciation risk for the Indian rupee in the short to medium term.
Details of RBI Interest Rate Hike Pause in April, SBI Prediction:
According to the latest Ecowrap report by SBI Research, the RBI is expected to pause their interest rate hike, with the current repo rate of 6.5 per cent being the terminal rate for now. The repo rate is the interest rate at which the RBI lends money to all commercial banks. The next monetary policy meeting is scheduled for the first week of April 2023.
At the previous Monetary Policy Committee (MPC) meeting in early February, the RBI decided to raise the repo rate by 25 basis points to 6.5 per cent to keep inflation expectations anchored, break the persistence of core inflation, and strengthen medium-term growth prospects. Raising interest rates is a monetary policy instrument that typically helps suppress demand in the economy, thereby helping the inflation rate decline.
The SBI Research report authored by Group Chief Economic Adviser State Bank of India Soumya Kanti Ghosh, suggested that the RBI has enough reasons to pause the repo rate hike in the April meeting. This is due to concerns of a material slowdown in the affordable housing loan market and financial stability concerns taking centre stage.
Notably, retail inflation in India fell marginally but remained above RBI’s 6 per cent upper tolerance band for the second straight month in February 2023, with the Consumer Price Index pegged at 6.44 per cent. In January, the retail inflation was 6.52 per cent.
The US monetary policy committee is also on an interest hike spree in the fight against inflation. Seeking to achieve maximum employment and inflation at the rate of 2 per cent over the longer run, it hiked the key interest rate by 25 basis points to over a 15-year high of 4.75-5.0 per cent at its latest two-day review meet last week.
The hike comes amid the dilemma faced by its central bank on inflation targeting and on maintaining banking sector stability – the former is way above target and the latter is shaky after the recent collapse of a couple of banks and the contagion effect on others.
“Fed rate hikes could be smaller in magnitude, and one last in May policy of 25 bps,” SBI Research said.
“The challenge is now to decouple from Fed. But the good thing is that a dovish Fed means soft dollar and thus lower depreciation risk for the Indian rupee in the short to medium term,” it added.
RBI, short for the Reserve Bank of India, is the regulatory body and central bank of India, responsible for overseeing the Indian banking system. The RBI is owned by the Government of India’s Ministry of Finance and is tasked with controlling, issuing, and maintaining the supply of the Indian rupee.
SBI is a Mumbai-based Indian government-owned banking and financial services corporation with a global presence.
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