RBI to hike rates again in June as inflation pressures mount

With the latest headline retail inflation coming in at an 8-year high and above the tolerance limit for the fourth consecutive month, analysts expect the Reserve Bank of India (RBI) to hike rates yet again.

In a recent Reuters poll, analysts expected RBI to hike rates in its June meet. Reuters said that over a quarter of economists, 14 of 53, expected the RBI to hike by 35 basis points to 4.75%, while 20 expected a larger move ranging from 40-75 basis points, including ten who forecast a 50 basis point hike.

Research firm Nomura in a note to clients said that it expects the RBI to hike rates by 35 bps, and a cumulative hike of 200 bps by Q3 2023.


The RBI in an unscheduled meeting on May 4 had hiked the benchmark lending rates by 40 bps, along with a 50 bps hike in the cash reserve ratio (CRR), signalling a hawkish tilt to its policy. This was the first rate action by RBI since May 2020. However, the MPC continued with its accommodative stance, unanimously.

“The RBI’s surprise intermeeting hike was partly in expectation of elevated inflation in April, but we believe substantial policy catch-up is still needed. We continue to expect more frontloaded rate hikes: 35 bps in June, followed by 50 bps in August and 25 bps at subsequent meetings until April 2023. We expect the repo rate at 5.75% by December 2022 and at 6.25% by April 2023. We also expect 100 bps in CRR hikes in H2 2023,” Nomura wrote.

The headline retail inflation rose to 7.8% on an annual basis in April, the highest since May 2014. The hot inflation reading reflected a broad-based rise across food, fuel and core inflation.

Analysts note that the inflation has continued to broaden out, with nearly 70% of the CPI sub-components rising above the RBI’s 4% target.

Analysts also expect the central bank to raise its inflation projection for the ongoing fiscal.

"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," Upasna Bhardwaj, senior economist at Kotak Mahindra Bank told Reuters. Bhardwaj has predicted a 35 bps hike by the RBI.