RBI May Hike Rates Up to 100 BPS Amid Global Interest Rate Rise
The global monetary policy regime is shifting towards tighter conditions, according to a research report by Motilal Oswal Financial Services. Major central banks are raising interest rates in response to persistent inflation and elevated public debt. The Reserve Bank of India (RBI) could face 75-100 basis points of cumulative rate hikes if crude prices remain high.
The RBI's liquidity absorption through variable rate reverse repo operations, open market operation sales, higher domestic bond yields, and tighter global financial conditions are already tightening financial conditions in India. The US Federal Reserve raised its policy rate by 25 basis points in September, taking the federal funds target range to 3.75-4 per cent.
Motilal Oswal expects the global economy to move from an era of abundant and inexpensive capital towards a period of tighter and more expensive money. Balance-sheet strength, refinancing dependence, and pricing power will become increasingly important for businesses.