Chennai, Feb 22 (IANS): Credit rating agency Acuite Ratings and Research said the Reserve Bank of India (RBI) will continue with monetary tightening and will hike the policy rate by 25 basis points (bps).

In a report, Acuite Ratings expects the RBI to persist with monetary tightening to guard against generalisation of core inflation pressures into a wage-price spiral.

"After a hike of 25 bps in Apr-23, MPC (Monetary Policy Committee) could opt for a pause for impact assessment. The stance may change to 'neutral' only after core inflation witnesses a sustained decline to below 5 per cent," Acuite Ratings said.

According to the report, over the last three months, inflation has begun to descend from peak levels across most economies in the world. The upshot from this development has been a step down in monetary policy aggression by most central banks despite the persistence of monetary tightening.

The MPC on February 8, raised repo rate by 25 bps to 6.50 per cent. This takes the cumulative hike in repo rate to 250 bps since May-22.

Although the average inflation forecast for FY23 saw a downward revision to 6.5 per cent and for Q4FY23 to 5.6 per cent, the central bank highlighted that core inflation continues to remain sticky around 6 per cent levels, Acuite Ratings said.

"We continue to maintain our 10 year Government Securities yield call in the 7.10-7.50 per cent range for the near term.