RBI Seen To Keep Raising Repo Rate At Next Two MPC Meetings
RBI may sustain its monetary tightening although at slower tempo to achieve a neutral rate of interest, Emkay Global's Madhavi Arora says.
(Bloomberg) -- The Reserve Bank of India may sustain its monetary tightening although at slower tempo to achieve a neutral rate of interest, according to Madhavi Arora, an economist at Emkay Global Financial Services Ltd.
“We still have 50 to 60 basis points of rate hikes to go for them to be able to reach a neutral level of real rates,” Arora said in an interview with Haslinda Amin and Rishaad Salamat on Friday.
The repurchase rate, currently at 5.9%, has to rise to about 6.5% to hit a positive real rate of about 1 percentage point against an inflation rate estimated at 5.5% by March 2023, according to Arora.
While India’s rate has returned to pre-pandemic levels after 190 basis points of increases since May, it’s still below inflation of 7.41% in September. The RBI will probably go for a front-loaded increase in December then a smaller hike in February, said Arora.
Still, India’s central bank won’t move in lockstep with the Federal Reserve that has raised the key rate by 75 basis points for a fourth straight time this week even as it signaled that the tightening path may soon involve smaller hikes.
“Emulating the fed could cost the economy,” Arora said, adding that the RBI isn’t going to get too restrictive.
On the rupee that has declined over 11% this year, Arora said that trying to protect the local currency was a “lost battle” for the central bank. A weak rupee works as an “automatic stabilizer” for the economy, she said, as it cools demand for imported products.
--With assistance from .
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