: Analysts see RBI taking policy rates well above pre-pandemic levels by March #IndiaNEWS #Business Mumbai: Citing the aggressive wording to tame inflation, analysts expect the Reserve Bank to deliver

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Analysts see RBI taking policy rates well above pre-pandemic levels by March #IndiaNEWS #Business
Mumbai: Citing the aggressive wording to tame inflation, analysts expect the Reserve Bank to deliver more rate hikes during the current fiscal and take key policy rates to well above the pre-pandemic levels.
Earlier in the day, the RBI-led MPC delivered a 50 bps hike in the key policy rates to 4. 90 per cent but left the cash reserve ratio unchanged and sounded more concerned about inflation management, as it has withdrawn the accommodative stance.
The central bank has also increased the inflation forecast by 100 bps to 6. 7 per cent in a span of two months.
Describing the monetary policy announcement as aggressive and moves beyond just frontloading interest rate increases, HDFC Bank chief economist Abheek Barua said the central bank seems far more concerned about inflation now, which is well reflected in its upward revision in its inflation forecast by 100 bps to 6. 7 per cent while remaining relatively more sanguine on growth impulses.
The RBI-Monetary Policy Committee is concerned about the broad-based nature of the rise in inflation and the risk of the second-round impact on inflation expectations. Therefore, the policy rate is likely to be raised well beyond the pre-pandemic level, close to 6 per cent by fiscal year-end, Barua said.
He is also expecting the rally in bond yields post the policy announcement due to no CRR hike to be short-lived amid elevated oil prices and rising global yields.
Echoing similar views, India Ratings principal economist Sunil Kumar Sinha said though rate actions are expected to balance the inflation growth dynamics, the MPC has stated that it will remain focused on the withdrawal of accommodation, as system liquidity continued to be high with daily absorption under the LAF averaging Rs 5. 5 lakh crore during May 4-31, 2022.
On May 4, the RBI delivered an unscheduled 40 bps rate hike.
The monetary authority has done the right thing by hiking the policy rates to anchor both inflation and inflationary expectation, he said.
Sinha is expecting another 25-50 bps hikes during the course of the year as the central bank expects inflation to be at 7. 5 per cent in Q1, 7. 4 per cent in Q2, 6. 2 per cent in Q3 and 5. 8 per cent in Q4, averaging the fiscal price index at 6. 7 per cent.
The repo rate will go up well beyond 6 per cent by the end of the fiscal, he said.
Icra chief economist Aditi Nayar is also expecting the rates to go up further.
More rate hikes remain clearly on the table, and the repo rate can go up by 35 bps and 25 bps, respectively, in the next two policies, Nayar said.
Bank of Baroda chief economist Madan Sabnavis said the policy stance indicates that the major threat to the growth process is inflation.

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