RBI may lean towards a rate hike on spike in crude price, inflation
MUMBAI: With crude oil prices touching $80 per barrel and core inflation rising, economists have revised their expectations from the Reserve Bank of India (RBI), ahead of a crucial meeting of its monetary policy committee (MPC) on June 4-6.
While some economists expect the MPC to assume a more hawkish tone, others expect a 25 basis points hike in key policy rates.
Minutes of MPC’s April meeting revealed how some members had signalled a more hawkish stance. Deputy governor Viral Acharya who called for this change in stance said he is likely to shift decisively to vote for a beginning of “withdrawal of accommodation” at the next meeting in June.
If indeed the RBI does effect a rate hike, it will trigger a series of lending rate increases by banks, pinching the politically important middle class and weakening the already lagging investment climate in the country.
According to Goldman Sachs, the RBI will shift its policy stance to a hawkish one, keeping key rates on hold.
However, chances of a rate hike will increase if international crude prices rise further or the rupee depreciates significantly.
“Although better activity data, higher inflation, and rising crude oil prices all point towards a more hawkish RBI and could warrant a policy rate hike, we think the RBI will await clarity on minimum support price (MSP) hikes for summer crops, monsoon outturns, and more inflation data before embarking on a rate hiking cycle,” said the foreign bank in its latest research report.