RBI Set to Raise Repo Rate Amid Rising Inflation and Global Monetary Tightening

The Reserve Bank of India (RBI) is likely to increase the repo rate by 25 basis points next week, following global central banks that have embarked on a path of monetary tightening. Major global central banks such as the US Federal Reserve, the Bank of Japan, and the European Central Bank have raised interest rates in recent months.

This move comes after India's retail inflation rose to a 20-month high of 4.82% in August, above the central bank's target midpoint for the third consecutive month. The RBI has maintained the repo rate at 5.25% since December last year, when it cut the interest rate by 25 basis points.

Rajeev Sharan, Head of Research at Brickwork Ratings, noted that 'the case for moving higher has strengthened: retail inflation has climbed to 4.82% and is set to peak around the festive quarter, crude is holding above $100, the rupee has slipped past 96, and the Fed's recent hike has narrowed the rate gap and added to currency pressure.'

Experts recommend that investors consider short-term debt funds as a safe option after a potential rate hike. V K Vijayakumar, Chief Investment Strategist at Geojit Investments, suggests adding short-duration debt funds to portfolios with a 3-year time horizon.