RBI governor Shaktikanta Das on Monday hinted at more interest rate hikes to bring down elevated inflation, but maintained it would be premature to forecast if the policy repo rate will go up to the pre-Covid level of 5.15 per cent.
Das made these observations in an interview with CNBC-TV18. He said the RBI will normalise liquidity over the next 2-3 years and that the monetary policy committee (MPC) will come out with a revised inflation forecast in its June meeting.
Earlier this month in an off-cycle meeting, the central bank raised interest rates for the first time in almost four years by hiking the repo rate by 40 basis points to 4.40 per cent.
The RBI also raised the cash reserve ratio (CRR) by 50 basis points to suck out Rs 87,000 crore of liquidity from the system.
The interest rate setting body will meet from June 6-8 where it is widely expected to raise the repo rate again from 4.40 per cent. With the RBI in withdrawal of accommodation mode, some experts have forecast that it will raise the repo rate to the pre-pandemic level of 5.15 per cent through multiple revisions.
“Expectation of rate hike, it’s a no-brainer. There will be some hike but how much I will not be able to tell now… to say that 5.15 (per cent) may not be very accurate,” Das said indicating that though more rate actions can be expected, it is too early to say whether the repo rate will land at 5.15 per cent after the hikes.
In April RBI had raised its inflation forecast for the current fiscal year to 5.7 per cent from earlier estimate of 4.5 per cent and lowered its GDP estimate to 7.2 per cent from 7.8 per cent for 2022-23.
Das added that both the RBI and the Government has entered into another phase of coordinated action to cool down inflation. Referring to the fiscal measures announced by the Centre that included reduction of duties on petrol & diesel and the wheat export ban among others, he said that these measures will have a sobering impact on inflation.
Retail inflation has been above RBI’s upper tolerance level of 6 per cent for four straight months. It jumped to an 8 year high of 7.8 per cent in April, as against 6.95 per cent in the previous month.
“Interest rates in almost every country today are negative, except Russia and Brazil. The target for inflation for advanced economies is about 2 per cent. Except for Japan and one more country, all advanced economies have inflation of over 7 per cent..We will move towards positive real rates, but it is impossible to forecast how soon because of the evolving situation,” the governor said