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Brace for yet another rate hike tomorrow

business Updated: Jul 24, 2011 22:00 IST
HT Correspondents

Expect the monthly instalments on your home and other loans to go up further. The Reserve Bank of India (RBI) is widely expected to raise signal interest rates for the eleventh time in 16 months when it meets for its monetary policy review on Tuesday.

Policy makers are in a bind: a series of fiscal and monetary measures has not tamed prices, but growth is stuttering. They signal, however, that inflation control is top priority.

RBI's accompanying policy statement will come under fine scrutiny to gauge subtle cues for the future in the central bank’s assessment of the current situation.

India’s inflation rate accelerated to 9.44% in June, driven by high fuel and manufactured products’ prices. But the impact of the recent diesel price hike is yet to be felt, so things are bound to get worse.

On the other hand, the government last week officially pared Indian economy’s growth forecast for 2011-12 to 8.6% from the earlier 9%.

“We expect another 0.25 percentage point increase in the repo rate from the RBI,” said Samiran Chakraborty, regional head of research (India) at Standard Chartered Bank. “We expect the repo rate to peak at 8% by September.”

“The RBI will remain focussed on inflation and probably characterise the moderation in growth as being uneven but largely anticipated and not yet sufficiently broad based,” said Rajeev Malik, senior economist at CLSA broking and research.

“The RBI rate action will continue to be driven somewhat mechanically by the inflation data that remains way above its comfort zone,” Abheek Barua, chief economist, HDFC Bank.