RBI May Hike Interest Rates By Up To 100 Basis Points. Check Details Here

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New Delhi: The Reserve Bank of India (RBI) may start raising the policy rate in the near future by up to 100 basis points. Earlier, Pakistan and Sri Lanka have raised their policy rates and India may soon start raising it too. “In the immediate neighbourhood, Pakistan and Sri Lanka have raised policy rates. We expect India, too, to start raising interest rates soon and the RBI may raise the policy rate by up to 100 bps in 2022,” Anand Rathi, Share and Stock Brokers said in a report, according to news agency IANS.Also Read – India’s Retail Inflation Jumps to 5.59 Per Cent in December 2021 from 4.91 Per Cent in November

“This can have negative impacts, at least in the short-term, on both the equity and bond markets,” Rathi said.

Retail inflation rose to 5.59 per cent in December, mainly due to an uptick in food prices, government data showed on Monday. The Consumer Price Index (CPI) based retail inflation was 4.91 per cent in November 2021 and 4.59 per cent in December 2020. As per the data released by the National Statistical Office (NSO), food inflation rose to 4.05 per cent in December this fiscal compared to 1.87 per cent in the preceding month.

Despite GDP and industrial growth rates being fragile and volatile, in view of the rising inflation, the RBI is likely to start raising the policy rate in the near future by up to 100 bps in 2022, Anand Rathi Share and Stock Brokers said in a report.

Nearly 40 per cent of the 100 countries to watch have already raised policy rates –- by an average (median) of 150 bps, it said.

Inflation in India is on the higher side compared to most peers. Inflation has become a key global concern, heightening inflationary expectations and leading to central bank actions.

The report said already nearly 40 of the 100 countries we watch have raised policy rates by a median of 150 bps. While the rate hikes so far have been more in Eastern Europe and South America, in Asia too rate hikes have begun in countries such as Indonesia and South Korea.

The depressed base of the last 12 months and expected pronounced hikes in minimum support prices (MSP) for agricultural produce (to support rural income) are likely to result in rising food inflation. The reverse is expected for fuel. We expect core inflation also to fall. Inflation in the next 12 months is likely to average around 5 per cent.

The Reserve Bank, which mainly factors in the retail inflation while arriving at its bi-monthly monetary policy, expects the inflation print to be somewhat higher over the rest of the year as base effects turn adverse.

According to the RBI, it is expected that headline inflation will peak in the fourth quarter of the current fiscal and soften thereafter.

(With inputs from Agencies)

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