Robust economic growth provides more room for RBI to hike interest rates: Report

New Delhi, Aug 26 (KNN) The Reserve Bank of India (RBI) gets more room to further increase interest rates due to a strong economic prospect, said a report by DBS Group Research on Thursday.

“The central bank’s stance of ‘withdrawal of accommodation’ suggests that benchmark rates are not yet at neutral levels, presumably one-two hikes away,” it said.

It expects India’s first quarter (April-June) growth to be at 16 per cent. The official GDP is expected to be issued on August 31.

Seeing India emerge as the fastest-growing economy in Asia this year it maintains an overall FY23 growth forecast at 7 per cent.

“Broad-based improvement in vaccination rates and relaxation of lockdowns benefited urban consumption, particularly on the back of a resumption in service sector activity, including contact intensive entertainment venues, hospitality, domestic/ international travel, restaurants, theatres etc,” Radhika Rao, senior economist at DBS Group Research, wrote in the report.

Unemployment rates have returned to pre-pandemic levels, with wage growth also improving, even as the labour participation rate lags 2019 levels, it said

“With 140 basis points worth tightening behind us, we look for 60 basis points more hikes in the repo rate within FY23. Our call is for 35 basis points hike in September followed by another 25 basis points in December to take the repo rate to 6.0 per cent, before settling into an extended pause,” the report added.  (KNN Bureau)