On August 5, the Reserve Bank of India (RBI) is expected to announce another rate hike as it plays catch up with other central banks to contain inflation and protect against further rupee depreciation. While the US Federal Reserve raised rates by 75 basis points (bps) at its meeting in July, the European Central Bank (ECB) instituted its first rate hike in 11 years, as it increased the deposit rate by 50 bps.
The current hike is expected to drive the repo rate either equal to or above the pre-pandemic level. Even if the RBI raises rates by 50 bps, the quantum of hikes would still be lower compared to other major economies. The Bank of England has raised rates by 1.65 per cent since March 2020, whereas the US Fed has instituted a 2.25 per cent rate increase during this period. With a 50-bp hike, India’s rates would have risen by 1.4 per cent.