RBI likely to hike repo rate by 25 bps today

RBI likely to hike repo rate by 25 bps today

If it happens, this will be the third consecutive rate hike by the central bank

The Reserve Bank of India (RBI) is expected to hike the repo rates by 25 basis points (bps), owing to the inflation concerns and weakening rupee.

If this happens, this will be the third consecutive rate hike by the central bank, with earlier two emanating solely out of inflationary concerns.  

The central bank, in the two monetary policy committee (MPC) meetings for 2018 held in June and August, hiked the bank rate by 25 bps each time. The RBI’s repo rate stands at 6.5%.

Repo rate is the rate at which the central bank of a country lends money to commercial banks in the event of any shortfall of funds. Repo rate is used by monetary authorities to control inflation.

As the apex bank’s MPC will be announcing its verdict later today, analysts and industry captains alike are expecting a rate hike.

“Given the economic condition, it is certain that RBI is going to hike the repo rate by 25 bps. It will put pressure on our interest rates,” CEO of a Karnataka-based public sector bank told DH.

Analysts also suggest that due to the interest differential between India and the US, FIIs and the FPIs have been flowing out of India, hence the RBI is expected to raise interest rates to cap the rupee fall.

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“There is a differential between US interest rates and India’s interest rates. So an intervention by RBI is also expected,” an analyst told DH. 

The FPIs and FIIs have withdrawn a record Rs 68,096 from Indian debt and equity markets till now in 2018.

Earlier, the US Fed Reserve also hiked its Fed Fund Rates on September 27 by 25 bps. 

Sensex tanks

Before the anticipated policy review by the RBI, markets have tanked, with BSE’s sensitive index Sensex dropping by 374.46 points in the first hour of the trade.

On Thursday, markets had witnessed its second-biggest loss in the current financial year.

“Ahead of the RBI policy meet, where another 25bps rate hike is expected, has added fuel to the negative sentiment and G-Sec yield also rose to 8.18%, it seems all the positives till last month are discounted and all-round selling across the sector has turned to bloodbath,” Yogesh Mehta, VP-Retail Research, Motilal Oswal Financial Services, had said on Thursday.

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