After the monetary policy meeting that started on October 5, the Reserve Bank of India (RBI) will announce the policy rates today. RBI Governor Sanjay Malhotra will give information about the decisions taken after the MPC meeting ends at 10 am. Most agencies and experts including SBI Research estimate that RBI may increase the repo rate by 25 basis points.
If this happens then the repo rate will increase from 5.25% to 5.50%. This will be the first rate increase by RBI after about three and a half years. Earlier in February 2023, RBI had increased the repo rate by 0.25% to 6.50%.
inflation pressure
Inflation pressure is considered to be the biggest reason for increasing the repo rate. India’s retail inflation increased to 4.82% in August, whereas it was 4.45% in July.
The government has given the responsibility to RBI to keep CPI based retail inflation around the target of 4%, with a scope of 2% up or down.
Apart from this, the ongoing conflict in West Asia and high crude oil prices are also increasing the risks to inflation. Apart from putting pressure on India’s inflation, expensive crude can also affect the current account deficit.
There was a reduction of 125 bps in 2025
Increase in repo rate will indicate a change in the monetary policy stance of RBI. The central bank had made four cuts totaling 125 basis points in 2025. After this the rates were kept stable for a long time.
At present the policy repo rate is 5.25%. Most of the participants in PTI’s poll have expected an increase of 25 bps and a relatively strict i.e. hawkish stance. However, opinions are divided on whether RBI will change its policy stance or not.
The market is not just looking at the rate
According to Hariselvan Radhakrishnan, Founder and CEO of HST Wealth, the 25 bps increase has already been absorbed in the market to a large extent. Therefore, RBI’s guidance regarding liquidity and further rates will be more important.
According to him, if RBI adopts a balanced approach based on data then banks and rate-sensitive sectors can get support. At the same time, signs of prolonged tight monetary policy may affect the recent recovery in the market.
Dr. VK Vijayakumar, Chief Investment Strategist of Geojit Investments, has also considered the increase of 25 bps almost certain. According to him, the market has already discounted this increase. Therefore, investors will keep an eye on RBI’s policy stance and growth-inflation projections.
What is the impact on banking shares?
According to Vijayakumar, banks’ margins can benefit from increase in interest rates, because interest income can increase by increasing floating rates. He described strong deposit and credit growth as a positive sign for the financial sector.
According to Vineet Bolinjkar, Head of Research at Ventura, there may remain volatility in the market this week. Rupee, crude oil and RBI’s rate stance will be important factors deciding the direction of the market.
Among rate-sensitive sectors, special attention will be paid to banks, auto and realty. On the other hand, the impact of Q2 earnings season starting from October 8 and TCS results and commentary may be visible in IT stocks.
Source: ndtv.in
