The RBI has now increased rates four times, totalling 190 basis points since its first unforeseen mid-meeting increase in May.
The Reserve Bank of India had hiked the repo rates by 50 basis points with the motive to tighten liquidity and tame inflation during the last meeting of its monetary policy committee on September 30 for the fourth consecutive time since May. However, the inflation rate has yet to fall below the 6% tolerance level.
Analysts believe that additional increases in the near future are anticipated because retail inflation in India has remained above the RBI's tolerance level for the previous 10 months.
Since its first unexpected mid-meeting rate increase in May, the RBI has now increased rates four times, for a total increase in rates of 190 basis points.
"Inflation trajectory remains clouded with uncertainties arising from continuing geopolitical tensions and nervous global financial market sentiments," RBI Governor Shaktikanta Das had said in his address after the MPC's decision on September 30.
"In this backdrop, MPC was of the view that persistence of high inflation, necessitates further calibrated withdrawal of monetary accommodation to restrain broadening of price pressures, anchor inflation expectations and contain the second-round effects," Das had said.
In this scenario, economists expect further hikes by the central bank.
The RBI will have to do a tightrope walk between managing inflation and sustaining economic growth momentum, a market analyst said.
Another analyst said that with the US Federal Reserve effecting aggressive rate hikes, central banks across the world too would have to follow suit and this would apply to the RBI as well.
Economists at the same time opined that RBI would have to ensure that hikes are tempered in such a way that both economic growth outlook and price rise are at an even keel.
At the same they agreed that huge rate hikes by the US Federal Reserve could force emerging economies to follow suit, i.e., to implement higher rate hikes, which may not necessarily be suitable for them.
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