The monetary policy committee (MPC) of the RBI began its three-day deliberations on Monday, with a repo rate hike a foregone conclusion. The MPC panel is also expected to continue with its liquidity soaking measures to bring down the surplus liquidity up to Rs 2.5 lakh crore, considered as non-inflationary.

The debate now is on the amount of rate hike: some analysts have projected an increase of 50 basis points (bps), but the consensus is lower at 35-40 basis points.

Many believe the RBI will want to go towards the pre-pandemic repo rate of 5.15 per cent by August.

However, Reserve Bank governor Shaktikanta Das had said in an interview that this may not be an accurate forecast. “The expectation of a rate hike is a no brainer, there will be some increase in the repo rates, but by how much I will not be able to tell now but to say that 5.15 may not be very accurate’’.

Last month, the MPC had raised the repo rate by 40 basis points to 4.4 per cent to control inflation. It was the first-rate hike after August 2018.

It had then decided to remain accommodative while focusing on the withdrawal of accommodation to ensure inflation remains within target, while supporting growth.

Shanti Ekambaram, group president — consumer banking, Kotak Mahindra Bank, feels the MPC which has signalled a gradual withdrawal of accommodation in light of higher inflation, could change its stance to neutral. But it will stay committed to bringing back inflation closer to the targeted levels .

“I expect a rate hike between 35-50 basis points in the June policy. Based on inflation data and external factors, including oil and commodity prices, expect a total of 100 to 150 basis points increase in the repo rate from the current 4.40 per cent. However, it is important that fiscal and monetary policies move in tandem to bring inflation within targeted levels and provide support to economic growth,’’ she said.

The RBI may be more aggressive in bringing down surplus liquidity. In April, the apex bank had said the withdrawal will be done within a multi-year time frame. Economists said it will move towards bringing down the system surplus to around Rs 2.5 lakh crore, from Rs 4 lakh crore.