Source: Reuters

 

Most economists still expect the Reserve Bank of India (RBI) to wait until its next quarterly review on July 27 to raise rates, despite headline inflation moving into double digits, a Reuters survey showed on Tuesday.

Two-third, or 14 out of 21 economists polled by Reuters expect the Reserve Bank of India (RBI) to leave its main borrowing and lending rates unchanged ahead of the July 27 policy, but 18 of 20 polled forecast the RBI would raise both key rates by up to 50 basis points in the next review.

The RBI has raised the repo rate, at which it lends to banks, and the reverse repo rate, at which it absorbs excess cash from the banking system twice in March and April by 25 basis points.

The repo rate now stands at 5.25 percent and reverse repo is at 3.75 percent.

Only one out of the 20 economists who had participated in a similar poll on June 11 now expects the RBI to raise rates ahead of and also in the next review.

Official data on Monday showed the wholesale price index rose an annual 10.16 percent in May, above a Reuters forecast of 9.56 percent and April's 9.59 percent.

The government also revised March's inflation to 11.04 percent from the earlier estimate of 9.90 percent.

"RBI will be looking for negative liquidity to moderate by July. The inflation trajectory was steep anyway and it's not a number off the mark. It's just that inflation came in double digits and it spooked the markets," said Deepali Bhargava, an economist with ING Vysya Bank in Mumbai.

Finance Minister Pranab Mukherjee on Tuesday said the RBI will take appropriate steps to control inflation and RBI Deputy Governor K.C. Chakravarty signalled the possibility of a rate hike ahead of July 27.

Data last week showed industrial output rose 17.6 percent in April from a year earlier, the strongest since December 2009, supported by buoyant domestic consumer demand, a revival in exports and higher infrastructure spending.

Thirteen economists in the latest survey expect the RBI to raise the repo and reverse repo rates by up to 100 basis points by end-December. Six out of 13 economists forecast a 50 basis point increase in cash reserve ratio by end-December.

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