Mumbai: The RBI will hike the key repo rate by a steeper 0.50 per cent at the next monetary policy review in December, economists at the country’s largest lender SBI said on Wednesday.
The Reserve Bank of India raised its benchmark repo rate by 25 basis points to 5.50 per cent on Wednesday, its first hike in nearly four years.
The 0.25 per cent hike along with a shift in the stance to “calibrated tightening” is a decisive policy message, they said.
“Given the steepening inflation trajectory currently underway, we believe that the December policy cycle could mostly deliver a jumbo 50 bps rate hike depending on the global conditions,” they said in a note.
SBI said that global conditions are likely to turn more volatile soon, and getting the repo rate to 6 per cent from the present 5.50 per cent will be the best option.
Even before the policy review, many economists and watchers had been expecting two rate hikes of 0.25 per cent each on Wednesday and at the December review.
The report also pitched for the country to have a clear artificial intelligence policy to facilitate capital flows to help the rupee.
“Without a clear policy, capital flow is unlikely. Thus, the need of the hour is to provide guardrails for the rupee that is effectively moving towards a dreaded benchmark now,” it said.
It also suggested a slew of other measures to help support the rupee, which depreciated by 43 paise to close at 96.78 against the dollar on Wednesday.
These measures include a minimised long-term capital gains tax graded structure beyond a reasonable period, say 3 years and beyond, widening the effective interest rate corridor by hiking the MSF (marginal standing facility) rate decisively higher, even if for a shorter period and continuing with liquidity management measures.