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After Fed, RBI could raise rates by 50 basis points to tame inflation

The global economy has been shaken by scorching inflation and geopolitical tensions, forcing more central banks to join the US Federal Reserve in raising interest rates.

The Fed set the pace on Wednesday with a 0.75% rate hike to a range of 3% to 3.25%. That is the fifth rate hike this year and from zero at the start of the year.

According to market experts, India could see an aggressive rate hike by the Reserve Bank of India (RBI) next week. The RBI’s policy decision is expected on September 30, with most market participants expecting interest rates to rise by 50 basis points.

Analysts at ICICI Securities believe that the RBI could raise its key rate by another 50 bps at the policy meeting at the end of this month and another 25 bps at the December meeting to 6.15%.

The domestic brokerage firm also added that the cumulative impact of monetary tightening this year is likely to help aggregate CPI inflation fall back below 6% yoy in November 22 and beyond.

“The story of the terminal repo rate in India has suddenly shifted from 6.50% to 6.50% in a matter of days, leading to excessive selling pressure as bond yields adjust,” said Nandan Pradhan, deputy general manager. Treasury, at Kosmosbank.

“We expect the MPC to rise 35-50 basis points as inflation remains a concern due to supply-side issues and evolving geopolitical scenarios surrounding the Russo-Ukrainian conflict and the Sino-US struggle,” Vivek Iyer, partner and leader (financial services risk) at Grant Thornton Bharat, stated.

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Market analysts say the continued rise in US interest rates could be risky for the Indian stock market, but it also presents an opportunity for foreign investors to diversify globally.

“While rising interest rates represent a headwind for Indian equities, our vibrant domestic demand scenario offers a ray of hope for global investors looking to diversify globally. We remain constructive on Indian equities over the medium term and continue to orient our portfolios towards domestic cyclicals, which are for us attractive from a medium-term perspective,” said Trideep Bhattacharya, CIO Equities, Edelweiss MF.

Turning to India’s CPI inflation, Deutsche Bank said the country’s aggregate retail inflation rate is likely to rise to a five-month high of 7.4% in September, with the risk of moving higher as food and food inflation gains momentum. vegetable prices will increase further in the rest of the year. the month.

“Our nowcasting exercise shows that CPI inflation is tracking about 7.4% yoy in September, versus 7.0% yoy in August,” India’s chief economist Kaushik Das said in a Sept. 20 note.

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