RBI likely to hike interest rates by up to 100 basis points in 2022

The RBI is likely to start raising the policy rate in the near future by up to 100 bps in 2022. "In the immediate neighbourhood, Pakistan and Sri Lanka have raised policy rates. We expect India, too, to start raising interest rates soon and the RBI may raise the policy rate by up to 100 bps in 2022. This can have negative impacts, at least in the short-term, on both the equity and bond markets," Anand Rathi Share and Stock Brokers said in a report.

Retail inflation during December 2021 hardened for the third successive month to 5.6 per cent but was lower than the consensus expectation. Food inflation jumped to 4 per cent, from 1.9 per cent in November 2021. Core inflation, though elevated, softened slightly to 6 per cent in December 2021.

Despite GDP and industrial growth rates being fragile and volatile, in view of the rising inflation, the RBI is likely to start raising the policy rate in the near future by up to 100 bps in 2022, Anand Rathi Share and Stock Brokers said in a report.

Nearly 40 per cent of the 100 countries to watch have already raised policy rates –- by an average (median) of 150 bps, it said.

Inflation in India is on the higher side compared to most peers. Inflation has become a key global concern, heightening inflationary expectations and leading to central bank actions.

The report said already nearly 40 of the 100 countries we watch have raised policy rates by a median of 150 bps. While the rate hikes so far have been more in Eastern Europe and South America, in Asia too rate hikes have begun in countries such as Indonesia and South Korea.

The depressed base of the last 12 months and expected pronounced hikes in minimum support prices (MSP) for agricultural produce (to support rural income) are likely to result in rising food inflation. The reverse is expected for fuel. We expect core inflation also to fall. Inflation in the next 12 months is likely to average around 5 per cent.