Citi said Thursday that it expects a 15 basis point (bps) hike in reverse repurchase agreements in the Reserve Bank of India’s monetary policy on October 8. As a result, the reverse repo will be raised to 3.5% from the current 3.35%, Citi said.
Citi advanced its forecast of rising reverse repurchase agreements to October compared to December earlier.
“The increased size and cutoff rates of recent VRRR auctions may have indicated that the RBI was willing to normalize cash management ‘operations’ sooner than expected. , MPC would try to differentiate between these “operational changes” and the continued growth bias of monetary policy for an extended period, “he said.
The increase in reverse repurchase agreements is based on the RBI’s increase in the closing rate for variable rate repurchase agreements (VRRR).
RBI raised the threshold for the latest 7-day VRRR to 3.89%.
The central bank had, on August 6, kept interest rates unchanged at a record high because it had chosen to support the economic recovery rather than inflation. The six-member Monetary Policy Committee (MPC) voted to keep the main buyback rate at 4%, but was divided over keeping a lower position for longer.
The RBI last revised its key rate on May 22, 2020, in a non-political cycle to revive demand by lowering the interest rate to an all-time low. This was the seventh meeting in a row where he maintained the status quo.