'RBI to raise interest rate for 4th straight time to quell inflation'

MUMBAI: The Reserve Bank of India (RBI) may take cues from its global counterparts, including the US Federal Reserve, to raise interest rate for the fourth time in a row on Friday to tame stubborn inflation.

The RBI, which has since May raised the short-term lending rate (repo) by 140 basis points (bps), may again go for a 50-bps increase to take it to a three-year high of 5.9 per cent, say experts. The Central bank had raised the repo rate by 40 bps in May and 50 bps each in June and August. The present rate is 5.4 per cent.

The consumer price index (CPI) based retail inflation, which had started showing signs of moderation since May, has again firmed up to 7 per cent in August. The RBI takes into account retail inflation while framing its bi-monthly monetary policy.

The RBI Governor-headed Monetary Policy Committee (MPC) is scheduled to start its three-day deliberations on Wednesday. The decision of the rate-setting panel would be announced on Friday. The government has tasked the RBI to ensure the retail inflation remains at 4 per cent, with a margin of 2 per cent on either side. SBI in a special report said a 50 basis points hike in repo rate “looks imminent”.

Madan Sabnavis, Chief Economist at Bank of Baroda, said inflation in India remains high at around 7 per cent and is unlikely to come down. “This means that a rate hike is given. The quantum is what the market would be interested in. While a hike of 25-35 bps would have signaled that the RBI is confident that the worst of inflation is over, the recent developments in the forex market could prompt a higher quantum of 50 bps to stay on track with other markets so as to retain investor interest,” he said.