SBI Research, IDFC First expect rate hike in October as crude prices climb: Higher oil prices & inflation raise likelihood of policy tightening
Economists are gearing up for a potential rate hike from the central bank as soon as October, driven by escalating crude oil prices and ongoing food inflation concerns. The CEO of Axis Bank has raised alarms about the increasing risks of inflation. This shift in monetary policy timing comes as the Monetary Policy Committee prepares to evaluate interest rates in early October, reversing earlier…
Economists forecast the central bank may hike interest rates in October due to surging crude oil prices, persisting food inflation, and sustained economic growth. IDFC First Bank and SBI Research anticipate a 25-basis-point increase next month. The Monetary Policy Committee of the Reserve Bank of India, consisting of six members, will convene from October 5 to 7 to evaluate interest rates.
The current repo rate is 5.25%. Factors contributing to the likelihood of policy tightening include rising crude oil prices around $108 a barrel, persistent food inflation, and a resilient economy. A prolonged supply-side shock could exacerbate inflationary pressures and expectations, despite the RBI reducing excess liquidity in the banking system.
Axis Bank's CEO cautioned that a rate hike may be necessary sooner rather than later due to inflation risks. Both IDFC First Bank and SBI Research emphasized that higher oil prices, sustained food inflation, and a widening India-US interest-rate differential increase the chances of policy tightening.
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