Hat-trick on rate hike almost certain, but will the RBI change its stance?

Given the rupee's slide and soaring crude prices, it's almost certain that the Monetary Policy Committee (MPC) of the Reserve Bank of India (RBI) will raise the repo rate for the third time in a row.

In the last policy meet, the RBI hiked repo rate by 25 basis points to 6.50 per cent, for the second time in a row. Reverse repo -- the rate at which the Reserve Bank borrows money from commercial banks within the country -- was adjusted to 6.25 per cent. The MPC had kept its policy stance neutral.

Most analysts expect the central bank to hike rates by 25 basis points (bps) when it announces monetary policy today. However, the key thing to watch out for this time around is whether the RBI will change its policy stance.

That apart, RBI is also expected to employ various liquidity management tools to ease the tight liquidity and the volatility in the money markets caused by the sharp depreciation in the rupee and the recent defaults in Commercial Papers (CP) by a large conglomerate.

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MARKETS LIVE: RBI hikes repo rate by 25 bps; indices remain higher

Markets continued trading higher after the RBI maintained neutral stance in the second policy decision of FY19. The central bank hiked repo rate by 25 bps to 6.25%. This is the first rate hike in over four years, reverse repo rate adjusts to 6%.

An increasing number of economists expected the Reserve Bank of India (RBI) to raise interest rates on Wednesday, a Reuters poll found, but most still thought the central bank would stay on hold and use this week’s meeting to prepare for an August hike.

Globally,  Asian stocks edged up on Wednesday after tech sector strength lifted Wall Street shares, while concerns about Italy’s debt prompted investors to move into lower-risk government debt elsewhere, pushing US Treasury yields down from recent highs.

MSCI's broadest index of Asia-Pacific shares outside Japan rose 0.1 per cent, while Japan's Nikkei edged down 0.1 per cent.