India’s Central Bank Likely To Hike Rates In June Again, Says Reuters Poll Of Economists

According to a majority of economists surveyed by Reuters, India’s central bank, the Reserve Bank of India (RBI), would follow up its surprise rate hike in May with another raise at its meeting next month. The scale of the move was extremely split.

In April, India’s retail inflation surged to an eight-year high, staying beyond the central bank’s tolerance limit for the fourth month in a row, and is expected to continue high. 

The RBI would most likely raise the repo rate, which is currently at 4.40 percent, to at least its pre-pandemic level next quarter, rather than 2023 as originally expected, due to the abrupt shift in views on increasing inflation and how to control it.

In a recent Reuters survey, 14 of 53 analysts predicted the RBI will raise rates by 35 basis points to 4.75 per cent next month, while 20 predicted a greater increase of 40-75 basis points, including 10 who predicted a hike of 50 basis points.

At the June 6-8 meeting, twelve respondents predicted a small rate hike (10 to 25 basis points), while seven predicted no change.

The RBI is expected to enhance its inflation forecast for the current fiscal year and consider raising interest rates during the meeting, according to a source familiar with the events.

However, such a wide range of opinions on how the RBI would respond to its unannounced 40 basis point rate cut on May 4 demonstrates the difficulty analysts face when they are caught off guard and given no clear direction on what to expect next.

“We need to really see the second action…in June to really get a grip of exactly what is the scale of policy normalisation that we can expect and the pace as well,” said Upasna Bhardwaj, senior economist at Kotak Mahindra Bank, who is predicting a 35 basis point rise to 4.75 per cent, the median forecast for June.

She added: “Markets are certain on one account that there will be aggressive policy rate hikes since inflation is the greatest threat at this moment.”

This aggressive prognosis echoes what other central banks were expected to do, particularly the Federal Reserve of the United States, which is projected to raise rates by 50 basis points at its forthcoming meetings following a similar move earlier this month.

Nearly a third of those polled (17 of 53) expect the repo rate to return to 5.15 per cent next quarter, where it was before the pandemic. Another 20 projected that rates will rise even further.

Interest rates were expected to rise further, hitting 5.40 per cent or higher by the end of 2022.

11 of 15 respondents in a considerably smaller sample with estimates through the end of next year anticipated the repo rate reach 5.75 per cent or higher.

Furthermore, the possibilities of the RBI joining some of its peers in raising interest rates by 50 basis points appear to be stronger now than they were previously.

An extra question found that 22 of 41 respondents thought there was a high or very high possibility of a 50 basis point RBI rate hike at the next meeting, while the remainder said there was a low or very low chance. That was a stark contrast to a recent poll, in which the majority of respondents thought such prospects were slim.

“​Communications out of the RBI could have been a lot better…this kind of surprise move certainly does not help with policy credibility,” said Tuuli McCully, head of Asia-Pacific economics at Scotiabank.

“I see their reasoning why they felt like they couldn’t wait any longer and had to act, but it certainly is an issue… if they say something and then act the other way then, it doesn’t help with the communication.”

Still, when asked how the RBI’s unexpected repo rate hike affected its credibility, 24 out of 34 respondents felt it improved, while the remainder said it worsened or did nothing.

(Adapted from


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