RBI to go for 35 basis points hike in rates at next week's monetary policy meeting:Report

The Reserve Bank of India's rate-setting panel will go for a 0.35 percent hike in the key repo rate at its meeting next week, an American brokerage said on Wednesday.

The hike will be accompanied by a change in the policy stance to ''calibrated tightening'', Bofa Securities said in a report published ahead of the Monetary Policy Committee (MPC) resolution which is set to be announced on August 5.

RBI has hiked the rate by a cumulative 0.90 percent in two tightening moves in May and June, responding to the runaway headline inflation which has consistently overshot the upper end of the target set for the central bank for many months.

Referring to policy actions since April, when RBI introduced the standing deposit facility, the brokerage said the central bank has effectively hiked rates by 1.30 percent.

''In our base case, we now see the RBI MPC hike policy repo rate by 0.35 percent, taking it to 5.25 percent (higher than pre-pandemic level), with stance change to calibrated tightening from the withdrawal of accommodation,'' the report said.

The brokerage expects MPC to retain its FY23 Consumer Price Inflation (CPI) and real GDP growth forecasts, at 6.7 percent and 7.2 percent, respectively.

Last week, RBI Governor Shaktikanta Das said that headline inflation, which came at 7.04 percent for April, is appearing to have peaked.

MPC can adopt a more aggressive measure and deliver a 0.50 percent hike in rates as it did in June, joining some developed market and regional central banks who have sent out more decisive signals.

On the other hand, a 0.25 percent hike in rates can also not be ruled out, the brokerage said, explaining that MPC could acknowledge that inflation has peaked and there are downside risks to their estimates and there will be measured hikes from here on.