Mumbai: With RBI revising upwa-rds its inflation forecast for FY19 despite being optimistic on domestic economic growth, financial market participants are expecting more hike in interest rate in the coming months.
The Central Statistics Office (CSO) provisional estimates have placed GDP growth for Q4 FY18 at 7.7 per cent, 70 basis points higher than that in Q3 — given the sharp acceleration in investment and construction activity. With improving capacity utilisation and credit offtake, the monetary policy statement said the investment activity is expected to remain robust even as there has been some tightening of finan-cing conditions in recent months. Global demand has also been buoyant, which should encourage exports and provide a further thrust to investment.
“We believe that both growth and inflation are likely to head higher in the coming months, pav-ing the way for another 25 basis point rate hike in August. However, the ong-oing tightening of financial conditions, higher oil prices and political uncertainty are likely to slow economic activity after September, in our view. Hence, we expect a pause thereafter,” said economists at Nomura Financial Services.
While the MPC maintained its neutral stance on policy outlook despite increasing interest rate by 25 basis point, HDFC Bank believes that its just the beginning of a rate hike cycle. “The monetary policy stance was left unchanged as “neutral”. The MPC justified this by saying that they would be data dependent, keeping the window open for a prolonged hold going ahead. However, given the rising inflationary pressures and the possibility of an overshoot above the RBI’s projected path for inflation, we believe this is just the beginning of a rate hike cycle,” it added.
