Days after the US Fed raised the interest rate, the RBI may go in for its third consecutive policy rate hike by 25-35 basis points to check high retail inflation, experts said.
The central bank has already announced to gradually withdraw its accommodative monetary policy stance.
The Reserve Bank's rate-setting panel -- Monetary Policy Committee -- will meet on August 3 for three days to deliberate on the prevailing economic situation and announce its bi-monthly review on Friday.
With retail inflation ruling above 6 per cent for six months, the RBI had raised the short-term borrowing rate (repo) twice -- by 40 basis points in May and 50 basis points in June.
The existing repo rate of 4.9 per cent is still below the pre-Covid level of 5.15 per cent. The central bank sharply reduced the benchmark rate in 2020 to tide over the crisis created by the pandemic outbreak. Experts are of the view that the Reserve Bank of India (RBI) would raise the benchmark rate to at least the pre-pandemic level this week and even further in later months.
"We now expect the RBI MPC to raise the policy repo rate by 35 bps on August 5 and change stance to calibrated tightening," BofA Global Research report said.
The possibility of an aggressive 50 bps and a measured 25 bps hike cannot be ruled out either, it added. A research report by Bank of Baroda said that while the Federal Reserve raised the rate by 225 bps in CY22, the RBI has hiked the repo rate by 90 bps. An aggressive rate hike by the Fed is feeding expectations that the RBI may also front load its rate hikes.