The Reserve Bank is likely to go for more rate hikes like the one today on risks from factors like the minimum support prices for farm produce and firm global commodity prices, HDFC Bank said today.
“This is not likely to be end of the hike cycle as domestic price risks such as MSP hikes and firm global commodity prices would warrant further monetary action,” the bank said in a post on microblogging site Twitter.
It termed the unanimous rate hike by the six-member monetary policy committee (MPC) as “sensible and cautious” given the events of the last two weeks.
The bank, however, said that the boost in liquidity through changes in liquidity coverage ratio will be offsetting the repo rate hike.
In the first such action in more than four years, the MPC resolved to hike the repo rate by 0.25 per cent to 6.25 per cent, citing risks to inflation, for which the RBI estimate was upped by up to 0.30 per cent during the fiscal.
Governor Urjit Patel later explained that the growth momentum is also picking up in the economy and the MPC decided to focus on its core objective of inflation targeting.
He said the RBI will be cautious way forward and will look at data on both inflation and growth.
The rate hike is set to come as a dampener to borrowers as banks have already been raising rates in the past few weeks.