RBI expected to move for another rate hike of 0.40% at review of monetary policy next week

RBI going for another round of rate hikes in the next week’s review of monetary policy

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RBI: According to the recent reports on June 4, the Reserve Bank of India would likely go for another hike in the rates at 0.40 per cent in the next week’s review of the monetary policy. 

The apex bank’s rate-setting panel will follow the next week’s hike with a hike of a further 0.35 per cent in the month of August. Also, it can also resort to an alternate way of a rate hike. Which would be at the rate of 0.50 per cent and the rate hike of 0.25 per cent in August. In order to make the total aggregate hike of 0.75 per cent. As suggested in the report made by Bofa Securities. 

RBI expected to move for rate hike 

As suggested by the governor of RBI Shaktikanta Das that the rumors of hikes in rates are a “no-brainer” and he would like to maintain the inflationary trends well within the expected 6 %. But the new reports from the brokerage suggest that. The inflation rate in the month of May was at 7.1 %. Due to the sharp increase in the tomato prices. 

The central bank has set a target to control and maintain the inflation rates between 2 – 6%. The methods applied in the process are excise duty cuts. Moreover, on fuel products, duty-free imports on soybeans, cuts in the ATF prices etc. 

The recent increase in the prices of fuel, food and raw materials due to the shut down of supply chains from the war has kept the RBI under a lot of pressure. 

 As the central bank works to normalize liquidity conditions by reducing surplus stock, the Cash Reserve Ratio (CRR), or the ratio of demand deposits held by lenders with the RBI without any return, is expected to rise further by 0.50 per cent, according to the brokerage.

It can be noted that the RBI had hiked the CRR rates from 0.50 % to a total of 4%. Thus, to snuff out the 87,000 crores of liquidity in the system.