Uday Kotak, CEO and Managing Director of Kotak Mahindra Bank, on Sunday said the interest rate should be increased by 100 basis points if it has to move to zero per cent real rate.

“Sharp increase in inflation estimate to 5.7 per cent from 4.5 per cent assuming 100$ oil. Exit Q4 FY23 estimate 5.1 per cent. Present repo rate at 4 per cent. If India has to move to 0 per cent real rate, that is inflation - interest rate = 0, we need 1 per cent increase of rates. Four rate hikes of a quarter each?” the veteran banker said in a tweet.

The six MPC members on Friday unanimously chose to keep the policy repo rate unchanged at 4 per cent even as RBI sharply revised the FY23 inflation projection upwards to 5.7 per cent from 4.5 per cent earlier. The FY23 real GDP growth projection has been cut to 7.2 per cent from 7.8 per cent earlier.

Experts said RBI is prepping the ground for a shift in gears regarding the policy stance to neutral and eventually, hike repo rate. “The April review was decidedly more nuanced and cautious in the assessment and guidance with the RBI acknowledging upside risks on inflation and taking measured steps to exit from the extremely accommodative policy stance,” said Rajeev Radhakrishnan, CIO-Fixed Income, SBI Mutual Fund.

comment COMMENT NOW