RBI Expected to Raise Repo Rate by 0.25% in December Amid Rising Inflation

New Delhi, November 13 (Daily Kiran) : The Reserve Bank of India’s Monetary Policy Committee (RBI-MPC) is likely to raise the repo rate by 0.25 percent during its meeting in December, as reported by SBI Research. The report suggests that while inflationary pressures remain, a more significant increase of 0.50 percent is unlikely.

Recent data released by the government indicates that the retail inflation rate has risen to 6.09 percent, surpassing the RBI’s target range of 2-6 percent for the first time since the new series was implemented. The report predicts that inflation may stay above 6 percent next month before beginning to decline.

SBI Research highlights improvements in perceptions surrounding artificial intelligence (AI), which could enhance India’s relative valuation and attract foreign institutional investments (FIIs). Since November 6, FII investments have surged to approximately $7.65 billion.

Additionally, the outlook for crude oil prices has improved due to easing tensions in the U.S.-Iran conflict. Following the recent U.S. elections, crude prices have dropped by 11 percent, averaging around $87 per barrel.

The report also notes that the victory of Democrats in the U.S. midterm elections may lead to further softening of U.S. Treasury yields, with the 10-year yield potentially moving toward 4.75 percent. In India, the 10-year yield is expected to remain between 6.75 and 7 percent, showing a clear downward trend.

SBI Research states that expectations for multiple interest rate hikes have significantly diminished. They believe the terminal repo rate may stabilize around 6 percent, with a possibility of dropping to 5.75 percent, estimating a 50:50 chance for both scenarios.

Looking ahead, further interest rate increases in February are deemed unlikely, especially with the central budget approaching. The focus will now shift to data-driven policy decisions following the anticipated 25 basis point increase in December.