SBI Research, IDFC First expect rate hike in October as crude prices climb: Higher oil prices & inflation raise likelihood of policy tightening
Leading economists, including those from SBI Research and IDFC First, now anticipate a potential rate hike by the Reserve Bank of India as early as October. This shift in outlook is primarily driven by escalating crude oil prices and persistent food inflation concerns. The CEO of Axis Bank has also highlighted increasing inflation risks. The Monetary Policy Committee is scheduled to evaluate interest rates in early October, with market sentiment now leaning towards monetary policy tightening, reversing earlier expectations.
What this means
The rising inflationary pressures, particularly from crude and food, are pushing the RBI towards a more hawkish stance. Banks should prepare for a higher cost of funds and adjust their lending and deposit rates accordingly. This could impact credit growth in interest-rate-sensitive sectors and influence treasury strategies.
Most affected: Bank treasuries, Retail lending, Corporate credit
Key takeaway: Anticipate potential upward revisions in deposit and lending rates following the next MPC meeting, and review interest rate sensitivity of portfolios.
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