The closed-door pre-policy consultative meeting on Thursday was held against the backdrop of a prolonged Iran War, high crude oil prices and heightened inflationary pressures.
“Markets are likely to increasingly price in the likelihood of a hike, especially if the rupee remains under pressure and a resolution on the US-Iran conflict proves to be elusive,” Radhika Rao, senior economist at DBS Bank, said in a note on Friday.
RBI held the repo rate at 5.25% in its April policy review.
“Discussions at the meeting were largely centred on the war, the risk of a pick-up in inflation and how much the global growth slowdown would be impacted, now that the war has lasted this long,” an economist who attended the meeting said on condition of anonymity. “RBI also asked for long-term views on rates, where many economists called for a rate hike.”
Anubhuti Sahay, chief economist at Standard Chartered Bank, however, expects the central bank to start increasing interest rates from the June policy review, as a sharper-than-expected depreciation in the rupee has raised risks for a surge in retail inflation.
“The risk of persistent inflation is likely to trigger a policy response. We expect 50 bps of hikes, split equally between June and August. However, if there is no hike in June, the repo rate could be hiked by 50 bps in August,” Sahay said in a report on Thursday.