RBI may hike repo rate by 25 bps

In its continues fight against inflation, the
Reserve Bank of India (RBI) is likely to raise the repo rate by another 25 basis points. The RBI Governor Raghuram Rajan is expected to take this measure when he makes his next monetary policy announcement on October 29, several economists say.

The RBI Governor is expected, at the same time, to further lower the marginal standing facility (MSF) rate by an equivalent amount to ease liquidity further for banks as the previous tightening of this measure seems to have achieved the purpose of shoring up the rupee.

A basis point is one hundredth of a percentage point. According to a survey The repo rate, at which RBI lends to banks, is expected to be raised to 7.75 per cent. A reduction in the MSF rate by the expected amount would see the differential with the repo narrow to 100 basis points, marking a return to what it used to be before the rupee slide. The cash reserve ratio and the statutory liquidity ratio are seen unchanged at 4 per cent and 23 per cent, respectively.

Morgan Stanley stated that with guidance in mind and recent stabilisation of currency and increasing probability of delay in US Fed tapering of quantitative easing, it (Morgan Stanley) expects the RBI to cut MSF rate by 25 bps to 8.75 per cent on October 29.