Mumbai: The Reserve Bank of India (RBI) is getting poised to raise interest rates for the first time since January 2014, analysts say — the question is whether this will happen on Wednesday or in August.
The anticipated increase could put a dent in growth, which has recovered after blows from the November 2016 demonetisation and the bumpy July 2017 launch of GST. India reported stellar 7.7 annual per cent growth for the quarter ended March 31.
But the key concern of the central bank, which has long kept the repo rate at 6 per cent, is the inflation rate, which is widely expected to climb further.
A sharp increase in global oil prices has hit the Indian economy hard and the rupee, among the best performing Asian currencies last year, is one of the worst in 2018.
A Reuters poll before the January-March growth data showed that 40 per cent of nearly 60 respondents saw a rate hike on Wednesday, while nearly 70 per cent of 44 projected that in August — a sharp contrast to an April survey seeing an increase only in 2019’s second half.
But the robust growth data caused some to see a rate increase sooner rather than later for the repo rate, at its lowest since November 2010.
“While we had pencilled in the first hike for August, we now think there is a good chance the monetary policy committee will pull the trigger in June,” said A Prasanna, chief economist at ICICI Securities Primary Dealership in Mumbai.
ANZ also changed its rate-hike view, seeing a 25 bps increase on June 6, to 6.25 percent, and another such one in August.
Prasanna expects the RBI to revise its consumer inflation projection upwards by 0.3 to 0.4 percentage points for March 2019 as the “risks to inflation are overwhelmingly ranged on the upside.”
India’s annual consumer inflation was 4.58 per cent in April, the sixth straight month when it topped the RBI’s medium-term 4 percent target.
