Axis Bank expects the repo rate to rise to 5.75% by end of this fiscal

With inflation remaining at elevated levels, the Reserve Bank of India (RBI) may gradually increase the benchmark lending rate to about 5.75 percent by the end of this fiscal, Axis Bank chief economist Saugata Bhattacharya said on Thursday.

He also said RBI may undertake front-loading of interest rate hikes to tame inflation which has been over the central bank's tolerance level for the past 4 months.

RBI Governor Shaktikanta Das has already said the possibility of another hike at the June review is a ''no-brainer''.

The next meeting of the Monetary Policy Committee (MPC) is scheduled for June 6-8.

RBI, in its first-rate move in two years and the first hike in nearly four years, raised the repo rate by 40 basis points to 4.40 percent following an off-cycle meeting last month.

In April, RBI raised its inflation forecast for the current fiscal year to 5.7 percent from an earlier estimate of 4.5 percent and lowered its GDP estimate to 7.2 percent from 7.8 percent for 2022-23, citing the impact of escalating geopolitical tensions triggered by the Russia-Ukraine war.

Bhattacharya expects RBI to raise the repo rate to 5.75 percent by the end of this year depending on various data, including inflation and growth.

''Rate hike is very data-dependent. If you see global growth coming very sharply or export growth coming sharply... then the extent of rate hikes that we are thinking now of 6 percent odd by the end of the year might not come to pass.

''If inflation print continues over 7 percent for some time, the rate hike cycle may be shortened in that case,'' he said.

Asked if the government can levy a windfall tax on Oil Marketing Companies (OMCs) to meet the deficit, Bhattacharya said that is a potential option.

''Oil companies have already been subjected to a degree of windfall tax because their inability to pass on the refinery throughput cost out into pump prices,'' he said.