RBI’s Surprise Rate Hike: Top Comments From Economists

Economists expect RBI to hike rates further in future

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As the Reserve Bank of India (RBI) stunned the markets by raising the repo rate by 40 basis points to 4.40 per cent on Wednesday, economists across the board felt that more such action could be seen from the central bank in the coming days. .

There was also the idea that demand has been quelled to control inflation.

Here are some comments from economists on RBI’s rate hike move:

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Madan Sabnavis, Chief Economist, Bank of Baroda

“RBI has stunned the market with its two pronged approach of return of housing which is an increase of 40 bps in the repo rate and 50 bps in the Cash Reserve Ratio (CRR)… This is indicative of the fact that such There will be further action taken over time based on rising inflationary conditions. We had expected a 50 bps hike in the repo rate in CY2022, but now believe that there will be another 50 bps hike in the year. Hence these The twin measures affect both the amount of surplus liquidity in the system as well as the cost of funds,” Mr Sabnavis said.

He further said that the hike in the repo rate would help in creating additional demand pressures and hence slowing down the growth in inflation, though it may not impact some of the factors which are driven by global factors.

Nikhil Gupta, Chief Economist, Motilal Oswal Financial Services Ltd.

“The RBI governor clarifies that the hike in interest rates is meant to control the impact of the second round of supply-side shocks. In our mind, this means that supply-side factors cannot be contained by monetary policy. The RBI seems to have decided to restrict future inflation by sacrificing demand,” Mr Gupta said.

“Wait for further cuts in GDP growth. Our non-agreed forecast is already the lowest at market consensus of just 6.4 per cent versus 7.5 per cent. More importantly, it is the last time to suggest such an urgency. Nothing major has changed in a month. In any case, the new normal has suddenly started for India. We can only hope for an easier future.”

Sujan Hazra, chief economist at Anand Rathi Shares & Stock Brokers, expects an immediate rise in money market rates and some transmission in the long-term bond market as well.

“The impact on the equity market is likely to be negative in the short term,” he said.

Barclays Chief India Economist Rahul Bajoria said he expects the RBI to hike by at least 0.50 per cent to 4.90 per cent in the next meeting to be held in early June and give relief only if it touches 5.15 per cent.

“Looking ahead, given the high probability of a higher inflation print for April, given the bullish rhetoric, the RBI will hike further,” he said.

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