RBI monetary policy today; rate hike expected as rupee slide accelerates

Anticipation of a rate hike has increased in the past month as oil prices climbed, the rupee`s slide accelerated and concerns on liquidity emerged.

New Delhi: The Reserve Bank of India is all set to announce its monetary policy on Friday with analysts believing that the central bank will hike interest rates by 25 basis points.

RBI is also expected to take a hawkish stance as the country grapples with inflationary pressures, weakening rupee, surging oil prices and market volatility sparked by a major non-bank finance firm`s defaults.

If RBI hikes rates this time, it will be the third in a row since June. The current repo rate stands at 6.50 percent. A Reuters report has said that this would be the steepest increase since the last tightening cycle, between September 2013 and January 2014, when India faced its worst currency crisis since the 1990s.

Some analysts have also told Reuters that they would not be surprised if there`s a 50 bps increase, given surging oil prices and the rupee is battering.

The rupee on Thursday crashed to a historic low of 73.81 to the dollar due to the twin-impact of capital outflows triggered by surging US Treasury yields and crude oil prices racing to a four-year high. To stem the rupee fall, the RBI Wednesday allowed oil companies to access foreign capital of USD 10 billion on a long-term basis to finance their working capital requirements.

Oil prices have reached four-year peaks as the market focused on upcoming US sanctions on Iran while shrugging off the year's largest weekly build in US crude stockpiles.

India`s inflation rate was 3.69 percent in August and is expected to go above the RBI`s projected 5 percent by June 2019 on higher fuel prices, the weak rupee and strong consumer spending.