RBI rate panel’s meet begins today

With the economic growth slowing and inflation remaining above the central bank’s tolerance level, the Monetary Policy Committee (MPC) of the RBI is likely to continue with rate hikes when it meets for its bi-monthly monetary policy on Monday. The magnitude, however, could be lower in the range of 25 to 35 basis points, economists said.

The six-member rate setting panel will begin its three day bi-monthly monetary policy deliberations from Monday and announce the outcome on December 7. The RBI has so far hiked the key short-term linked lending rate (repo) by 190 basis points in four tranches since May to contain inflation.

D.K. Joshi, chief economist Crisil Ltd, said, “The MPC may not be as aggressive as it was in the previous meeting. The challenge is that the economic growth is gradually slowing down, while inflation, despite recent declines, remains above the RBI’s upper tolerance level of six per cent. So the MPC may hike the repo rate by 25 bps and enter into a wait-andwatch phase after that to assess the impact of its previous rate hikes as well as the actions of other central banks such as the US Fed."

According to RBI, banks have increased their external benchmark-based lending rates (EBLRs) by 190 basis points in tandem with the hike in RBI's policy repo rate since May this year, though they have been slow in raising the deposit rates.

Further, banks have also increased their one-year median marginal cost of funds-based lending rate (MCLR) by 85 bps from May to October 2022.

However, the banks have raised the interest rates on term deposits by a much lower margin.

Madan Sabnavis, chief economist, Bank of Baroda said, “We do believe that the MPC will continue with rate hikes this time though the magnitude will be lower — probably 25-35 bps. We do believe that the terminal repo rate for the financial year will be 6.5 per cent, which means there will be one more rate hike in February.”