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HomeBusinessReserve Bank of India to hike rates in June policy: Report

Reserve Bank of India to hike rates in June policy: Report

Reserve Bank of India is expected to hike key policy rates by 25 basis points in June, largely on account of sharp increase in crude oil prices over the last few months, says a Deutsche Bank Research report.

The global brokerage had said earlier that it expected RBI to maintain an extended pause and start the rate hike cycle only from the beginning of next year. Following the surge in global crude oil prices in recent weeks, the RBI may now prefer to opt for a rate hike sooner than later, the report said.

We now see RBI hiking the repo rate by 25 bps in June itself (to 6.25 per cent), reversing the 25 bps rate cut of August last year, and likely hiking another 25 bps by the end of this calendar year or early next year,” it said.

Brent crude prices are currently hovering around USD 75/barrel, which is up 12 per cent from end December 2017 levels.

“Higher global crude oil prices are net negative for the Indian economy in almost all aspects – inflation, fiscal deficit, current account deficit, rupee etc. – and may need a pre-emptive response from the central bank to reduce pipeline risks and strengthen domestic and external macro stability,” the report said.

The report further noted that in case a rate hike is not delivered in June, it expects “the neutral stance to be at least changed to a hawkish stance and then a rate hike coming through in August”.

The six-member MPC, headed by RBI Governor Urjit Patel, had left the benchmark repo rate unchanged for the third time in a row after deliberations on April 4-5, citing inflationary concerns.

The minutes of the April MPC meeting released by the RBI noted that RBI Deputy Governor Viral Acharya favoured withdrawal of monetary accommodation in the next policy review meeting scheduled on June 4-5.

Meanwhile, Executive Director Michael Debabrata Patra voted for an increase of 25 basis points in April itself, though the majority view of maintaining status quo prevailed.

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