RBI likely to go for another rate hike in Sept: Experts | business | Hindustan Times
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RBI likely to go for another rate hike in Sept: Experts

business Updated: Aug 22, 2011 14:12 IST

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The Reserve Bank of India is likely to continue with its tight monetary policy stance to fight inflation and effect another hike in key interest rates in September, even though the global economic environment is on a downslide, believe experts.

However, while the Reserve Bank of India is likely to go for another interest rate hike at its next mid-quarterly policy review on September 16, it will not be very aggressive, the experts said.

According to global research firm Macquarie economist Tanvee Gupta Jain, "While the RBI will continue on its anti-inflationary stance, adverse global environment suggests that it might become less aggressive..."

Global investment banking major Morgan Stanley also thinks, "The RBI will continue with its anti-inflationary stance with one more 25 basis points hike in order to anchor inflation expectations decisively, barring a further deterioration in the growth outlook."

The RBI, at its last review meet in July, raised the repo (borrowing) rate by 50 basis points to 8 % and the reverse repo (lending) rate by 50 basis points to 7 %.

The apex bank has hiked the key policy rates 11 times since March, 2010, to curb inflation, which has been hovering above the 9 % mark since December last year.

Headline inflation stood at an eight-month low of 9.22 % in July. However, this was much above the Reserve Bank's "comfort zone" of around 5 %.

Despite several interest rate increases, the rising discretionary income of the middle class is likely to exert upward pressure on inflation, say experts.

In its Economic Outlook for 2011-12, the PMEAC had projected inflation to remain high at around 9 % till October, before moderating to around 6.5 % by March, 2012.

Notwithstanding the adverse global economic scenario, better-than-expected June factory output data is likely to prompt the Central Bank to go for another round of rate hikes. The Index of Industrial Production grew by 8.8 % in June, 2011, compared to 7.4 % in the corresponding period last year.

However, recent negative global developments like the sovereign debt crisis in Europe and increasing concerns that the US economy may slip into recession after its long-term debt rating was lowered a notch to AA+ by Standard & Poor's are expected to eventually affect the Indian economy to some extent, the experts believe.