'Policy rate may cross 6% in current fiscal'

Mumbai: Economists and analysts expect the Reserve Bank's monetary policy committee to continue with rate hikes till the policy rate reaches the neutral rate of 6-6.5 per cent by the end of this fiscal.

The MPC on Friday delivered the third straight rate hike since May with an increase of 50 basis points in the latest round. Now, the repo rate is at 5.40 per cent.

"We believe that the current policy rate hike cycle is expected to continue till the Reserve Bank of India reaches what is known as 'neutral policy rate'," Sunil Kumar Sinha, the Principal Economist at Ind-Ra, said.

According to him, neutral policy rate is the short term policy rate that is expected to stabilise the economy in the long run by letting the economy realise its growth potential but keep the inflation within the target range and inflationary expectation well

anchored. Under the current macro environment, "we reckon this neutral policy rate to be in the range of 6 6.5 per cent.

Swiss brokerage UBS Securities said it expects the MPC to raise the repo rate further to 5.75 per cent by the end of FY23.

Rahul Bajoria, Chief Economist at Barclays India, said he sees another 50 bps hike by December and noted that the policy significantly focuses on the external position.