Uday Kotak, the CEO and MD of Kotak Mahindra Bank, on Sunday said that India will have to hike interest rate by 100 basis points if it has to move to zero per cent real rate, and asked if the Reserve Bank of India (RBI) will go for a rate hike of 25 basis points each in four quarters.
"Sharp increase in inflation estimate to 5.7% from 4.5% assuming 100$ oil.Exit q4 fy23 estimate 5.1%. Present Repo rate at 4%. If India has to move to 0% real rate that is inflation - interest rate =0, we need 1% increase of rates. 4 rate hikes of a quarter each?" the veteran banker said in a tweet.
Rbi policy:Sharp increase in inflation estimate to 5.7% from 4.5% assuming 100$ oil.Exit q4 fy23 estimate 5.1%. Present Repo rate at 4%. If India has to move to 0% real rate that is inflation - interest rate =0, we need 1% increase of rates. 4 rate hikes of a quarter each?— Uday Kotak (@udaykotak) April 10, 2022
The RBI's Monetary Policy Committee (MPC) on Friday voted unanimously to keep the repo rate unchanged at 4 per cent. The rate was kept unchanged for 11th time in a row, while the reverse repo rate was also kept unchanged at 3.35 per cent.
However, recognising the challenges triggered by higher crude oil prices due to Russia-Ukraine war, the central bank slashed the GDP growth forecast for financial year 2022-23 to 7.2 per cent from 7.8 per cent earlier.
Even as the world was trying to recover from the COVID-19 pandemic-led disruptions, Russia's invasion of Ukraine has led to more worries for central banks across the world as inflation is on a rise globally. India is no exception to this. The RBI revised its inflation projection for FY23 higher to 5.7 per cent from 4.5 per cent earlier. This forecast is based on the assumption of crude oil prices at $100 per barrel.
RBI Governor Shaktikanta Das projected inflation rates for FY23 at 6.3 per cent for Q1, 5 per cent for Q2, 5.4 per cent for Q3 and 5.1 per cent for Q4.
Das said that India is in a quagmire of "new but humongous challenges". These include shortage of key commodities, fractures in international financial architecture, and apprehensions around de-globalisation. He also said that supply chain disruptions have rattled global commodities and financial markets.
Das noted that any projections of growth and inflation are "fraught with risk and is contingent on future oil and commodity price developments".
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