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Brace yourself for a high interest rate regime...

business Updated: Jan 07, 2011 01:53 IST
HT Correspondent

Lingering doubts on whether the pause in interest rate hikes might extend vanished on Thursday after food inflation touched a worrying 18%.

Experts also added that the higher rate regime may also last longer.

That means you must clearly be prepared to shell out more on home loan payback installments.

The rate hike could come by month-end, as the Reserve Bank of India is due to hold its third-quarter policy review meeting on January 25.

"The food inflation is unlikely to subside as there are supply side problems and the Reserve Bank of India may raise the repo rate and the reverse repo rate by 25 basis points (0.25 percentage point) each," said Abheek Barua, chief economist, HDFC Bank.

Experts say RBI is unlikely to touch the cash reserve ratio (CRR) - the share of their deposits that banks must park with the central bank - as the liquidity situation is tight.

"I don't think RBI can relax. While there are no short term solutions to the current food inflation problems, modernisation of retail is key to agricultural reform and bringing down the food inflation," said Rajiv Kumar, director-general of industry chamber FICCI.

In its mid quarter monetary policy review in December 2010, the central bank said inflation continued to remain a major concern and there was a need for continued vigilance on the front against the build-up of demand side pressures.

When prices act pricey