RBI may hike repo rate by 0.25-0.50 per cent: Analyst

Economists and market analysts expect the Reserve Bank of India (RBI) to increase the repo rate by 0.25 to 0.50 per cent

this week in view of volatility in commodity prices due to high inflation and geo-political tensions.

The meeting of the Monetary Policy Committee, which sets policy rates of the Reserve Bank, is starting on Monday.

The decisions of the committee will be announced by RBI Governor Dr Shaktikanta Das on June 8.

The Reserve Bank had last month raised the policy interest rate by 0.40 per cent to 4.40 per cent to curb inflation by convening

a meeting in the middle of the bi-monthly review meeting of the committee.

Governor Dr Das had recently indicated that policy rates may increase further in the times to come.

Therefore, the possibility of an increase in the repo rate is considered fixed.

Repo rate is the rate at which banks borrow money from RBI for their day-to-day basis.

An increase in the repo rate increases the cost of money with the banks and they make loans costlier for the borrowers.

The Monetary Policy Committee had also increased the cash reserve ratio (CRR) from 4.0 per cent to 4.5 per cent in the last unexpected meeting,

which has come into effect from the fortnight of May 21.

With the increase in CRR, banks have to keep additional cash under the control of the Reserve Bank,

which limits the funds available with them for lending.

On the prospects of RBI's review meeting from Monday, Suvodip Rakshit, Senior Economist, 

Kotak Institutional Equities said, “We are looking at 0.40 per cent growth in repo in the June policy meeting.

But it is also possible that RBI may increase any level in the range of 0.35-0.50 per cent.”