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RBI raise the repo rate for the third consecutive time

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SN RAYALA

The monetary policy committee (MPC) of the Reserve Bank of India (RBI) began its three-day meeting on Wednesday, with economists differing on the amount of hike in the policy repo rate.

Though analysts are almost certain MPC will raise the repo rate for the third consecutive time this year, they are divided on whether it will be a 35 basis point (bp) or a 50 basis point (bp) hike.

There are a few who expect a much smaller 25bp upward revision in the repo rate which determines the interest rates on home and car loans among others. In 2022, MPC has raised the benchmark rate by a cumulative 90 basis points to 4.90 per cent.

MPC will announce its decision on August 6. Prior to the pandemic, the repo rate was at 5.15 per cent.

Radhika Rao, executive director and senior economist at DBS Group Research, believes the repo rate will be increased 35 basis points to 5.25 per cent, which she said will take the benchmark back to late-2019 levels.

Re fall

The rupee slumped 68 paise to close at 79.21 (provisional) against the dollar on Wednesday. Dismal macroeconomic data put downside pressure on the rupee: India Services PMI declined to 55.5 in July from 59.2 in June while Composite PMI declined to 56.6 from 58.2 during the same period


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