The Reserve Bank of India's (RBI) monetary policy committee (MPC) will announce its key policy decision later this afternoon. Experts have predicted a 25 basis points hike in repo rate. The MPC meet comes amid rapid rise in international crude oil prices and Indian rupee hitting its all time low by breaching 73 mark against the US dollar.
The MPC is likely to weigh in the expected rise in inflation due to higher crude oil prices, free fall of Indian currency and widening current account deficit (CAD).
However, despite the rise in oil prices, the headline inflation number came down to 3.69 per cent for August as against 4.17 per cent for July.
If the RBI raises the repo rate today, it would be third in a row. It hiked key policy rate in this fiscal's second bi-monthly policy in June after a hiatus of four-and-a-half years. Subsequently, the RBI raised the repo rate or short term lending rate by another 25 basis points in August policy meet. After two successive hikes, the repo rate currently stands at 6.50 per cent.
"With petrol and diesel prices moving up, there is a strong expectation that inflation will also move up. So, they (RBI) may take a pre-emptive action. I feel there will be an increase of 25 basis points in the repo rate," Union Bank of India managing director and chief executive Rajkiran Rai had told PTI.
Experts say the weaker trend in the rupee may also prompt the central bank to raise repo rate.
"Given where currency level is at this point of time, I think they will increase the interest rate by quarter basis points," HDFC vice chairman and chief executive Keki Mistry had told the news agency.
Tracking global developments, the rupee has become weak and is hovering around 73 against the dollar.
The SBI, in its research report, Ecowrap, said the RBI should raise the policy repo rate at least 25 basis points to arrest the rupee's fall.
"We rule out a hike of 50 basis points, as it may spook the market. However, there is a probability of change in neutral stance too, as three successive rate hikes with a neutral stance could contradict RBI message," the research report said.
A Kotak Economic Research report said the MPC will likely increase the repo rate by 25 bps in the October policy based on the implied impact of expected cyclical recovery in growth, rupee depreciation, and crude price movement on the medium term inflation trajectory.
With PTI Inputs