Reserve Bank of India likely to hike key interest rate by 25 bps in June

The Reserve Bank of India is set to meet tomorrow for its interest rate decision. According to a Scotiabank research report, the RBI is expected to hike its benchmark Repo Rate by 25 basis points to 6.25 percent with the aim of striking a balance between strengthening economic growth and achieving the medium-term target for CPI inflation of 4 percent, plus or minus 2 percent.

Indian headline inflation rose to 4.58 percent year-on-year in April from a five-month low of 4.28 percent year-on-year the month before. The May inflation data is set to be released next week. While the headline print might ease moderately starting from July on the back of the favorable base effect, the nation’s core inflation that was at 5.80 percent in April would remain elevated down the road, according to Scotiabank.

April’s meeting’s minutes showed a more hawkish tone than the statement published earlier in the month. Central Bank Chief Urjit Patel had stated that “even as inflation has moderated in recent months, several upside risks to inflation persist”.

“The INR will likely consolidate around 67.0 for now and then recoup some of its earlier losses amid improved risk sentiment and a pullback in oil prices, but remains susceptible to external uncertainty”, added Scotiabank.

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