RBI plans to increase policy repo rates for the third time in a row to control inflation

Analysts and economists disagree on the extent of the rate increase, even though it is almost certain that policy interest will rise. Between 25 and 50 basis points can be found in the range.

On August 5th, the Reserve Bank of India (RBI) is expected to increase the policy repo rate by 25 to 50 basis points in an effort to curb inflationary pressure.

If implemented, this would be the third increase since the start of the current fiscal year.


Although a rise in policy interest rates is all but guaranteed, analysts and economists disagree on the magnitude of the increase. It fluctuates between 25 and 50 basis points.

According to Srikanth Subramanian, CEO-Designate, Kotak Cherry, predicts that the RBI would increase the policy repo rate by 35 to 50 basis points.

“The upcoming RBI policy is expected to resonate the rate increase action taken by peer central bankers with the consensus between 35-50 bps hike getting acknowledged across the yield curve,” Subramanian said.

“Monetary policies are swayed by macro data where inflation and growth are tracked with few high-frequency indicators. Few advanced economies have fallen prey to conflicting indicators and facing the tough task of collaborating them together. Domestically, the cooling of commodities along with crude, good GST numbers, rise in PMI, firm power consumption points towards the resilience of the economy and have provided RBI with a clear guidance to focus on price stability (inflation),” Subramanian added.

According to some experts, RBI may raise rates for a third time in a row by 25 to 35 basis points to control inflation.

On Wednesday, the RBI Monetary Policy Committee’s second bimonthly meeting got underway. On Friday morning, RBI Governor Shaktikanta Das is expected to make the Monetary Policy Committee decisions public.

As long as inflation remained above its comfortable level of 6 percent, the RBI has already raised interest rates by 90 basis points in the last two policies.

The RBI is “likely to lift rates above a level deemed “neutral” (which we think is closer to 5.25 percent) before slowing down or looking at becoming more data dependent in this rate hike cycle,” according to Abheek Barua, chief economist at HDFC Bank.

“As long as CPI remains above RBI’s threshold range, we anticipate the RBI MPC to increase the benchmark repo rate by 50 basis points. As the CPI trend appears to be following the RBI’s prediction for FY 2023, commentary may be neutral or dovish. The guidance, if any, in the future course of rate rises would also be crucial to pay attention to “the Kotak Mahindra Asset Management Company’s Lakshmi Iyer, Chief Investment Officer (Debt) & Head Products.

“The important question for policymakers now is how much to hike, rather than to hike or not earlier this year. In terms of rate increases, the US Fed appears to be on Sprint. The luxury of a marathon may not be available in most other economies; as a result” Iyer said.

BofA Global Research in its report said, “We now expect the RBI MPC to raise the policy repo rate by 35 bps on August 5 and change stance to calibrated tightening,” as reported by PTI.

On the impact of the RBI decision on the stock markets, Subramanian said, “Equity markets seem to have discounted a 35-50 bps rise and hence a corresponding rate hike may not result in a big shock specially on the back of good earnings and economic momentum.”

In the remaining months of the fiscal year 2022–23, data analytics company CareEdge anticipates RBI will increase the policy interest rate by another 100 basis points. By the end of FY23, this will raise the terminal rate to 5.90%.

The lowering of numerous commodity prices is credited as a major component of impact towards a reduced inflation trajectory by the fourth quarter of FY23, despite the fact that the present CPI inflation is still hovering around 7%.

It will be the third consecutive increase if the RBI decides to raise the policy repo rate on Friday. At the start of the current fiscal year, the RBI began tightening monetary policy. In May, the RBI increased the policy repo rate by 40 basis points, or 0.40 percent, as part of its off-cycle monetary policy review. The policy repo rate had not increased prior to this in almost two years. The interest rate at which the RBI loans short-term funds to banks is known as the repo rate.

The RBI increased the policy repo rate by 50 basis points to 4.90 percent in June as part of its second bimonthly policy review.