RBI may raise reverse repo rates

A reverse repo rate hike in the coming monetary policy is a fait accompli given that the overnight call rates have surged past the rate the RBI provides banks for parking their excess funds. If the budget deficit numbers are more than 6.5 percent of the GDP, then even the repo rate hike may be on the table.

The Reserve Bank of India’s monetary policy committee (MPC) which is expected to give its verdict on the rates in less than a fortnight on February 09, will hold its meeting amidst waning concerns over the impact of the rise in Omicron infections on India’s revival story and rising worries on retail inflation levels crossing the upper end of the mandated band of 2-6 per cent.

Given this backdrop the MPC is most certain to raise the benchmark policy rates. ” With the Indian economy sustaining a strong recovery, the RBI will be more amenable to raising interest rates in response to the persistence of high inflation” said Prasanjeet Basu, chief economist at ICICI Securities. “” We expect the policy rate to rise by 50bp over the course of 2022?. The repo rate the rate which the central bank lends is unchanged at 4 percent and the reverse repo rate the rate at which it borrows from banks is unchanged at 3.35 per cent since May 2020.