The three-day Monetary Policy Committee (MPC) meeting is set to begin on August 3 and will be chaired by RBI Governor Shaktikanta Das and other MPC members. The MPC’s decision on the bi-monthly monetary policy for FY23 will be made public on August 5. The most pressing concern is inflation, which has hit multi-year highs and is putting pressure on major central banks across the globe to hike interest rates.

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The Reserve Bank of India began the rate hike cycle this year with a surprise 40-basis-point rise in the repo rate in May and another of 50 basis points in June. Currently, the Central Bank has raised the repo rate by 90 basis points, whereas the US Fed has raised its key rate by 225 basis points to fight rising inflation.

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Currently, the policy repo rate is 4.90%. The Bank Rate has been adjusted to 5.15%, the marginal standing facility rate has been set at 4.65%, and the standing deposit facility rate at 4.65%.

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Analysts expect that the MPC will reduce its inflation forecast for FY23 to 6.7% from 7.01% after consumer price index (CPI) decreased to 7.01% in June. The governor of the Reserve Bank of India, Shaktikanta Das, stated that inflation appears to have peaked, but he also cautioned that, despite June’s moderating trends, commodity prices remain high.

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According to Lakshmi Iyer, Chief Investment Officer (Debt) and Head Products, Kotak Mahindra Asset Management Company, the key worry for policymakers now, rather than whether to increase rates or not earlier this year, is how much to hike.

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“We expect RBI MPC to hike the benchmark repo rate by 50bps as CPI continues to rule above RBIs threshold band. Commentary may be neutral/dovish as CPI trend seems to be following RBIs forecast for FY 2023. Key to watch also would be the guidance if any in the future course of rate moves,” she said.