Reserve Bank of India is expected to hike key interest rates by 25 basis points today to tame the near double-digit inflation, Economic Times reported.
This move may eventually make auto, home and corporate loans more expensive, the reports said. As the inflation remains high at 9.78% for August, the bankers and economists expect the central bank to continue with hawkish monetary policy and hike rates again at the mid-quarterly credit policy review today.
Reserve Bank of India has raised interest rates 11 times since March 2010 to check the rate of price rise, but the inflation has remained much above the central bank’s comfort level of 5-6%.
Oriental Bank of Commerce executive director SC Sinha said, “The current rate of inflation would put pressure on RBI to further tighten monetary policy. There could be a hike of 25 basis points in key rates by RBI.
Standard Chartered senior economist Anubhuti Sahay expressed his opinion by stating, “Moderation in growth is not yet broad-based. As inflation control remains the central bank’s major agenda, we think it is likely to go in for another hike of 25 basis points inkey-policy rates.”
However, while raising the rates, RBI will have to consider its impact on economic as well as industrial growth, which fell to 21-month low of 3.3% in July.
The economic growth in the April-June quarter stood at 7.7%, lowest in six quarters. In view of the sliding growth, industry chambers have urged RBI to refrain from hiking interest rates buy the central bank, economists feel, will give precedence to inflation control before growth in its policy review.
According to State Bank of India chairman, Pratip Chaudhuri control, ” RBI is chasing inflation and till such time is contained, the central bank will continue with tight monetary policy stance, Chaudhuri said. Economists said, the weakening of the rupee against the US dollar was bad news for policy makers grappling with inflation.
“The recent depreciation of the rupee relative to the US dollar would exert pressure on the prices of imported items. Accordingly, we expect the RBI to persist with monetary tightening and hike the repo rate by 25 basis points in the forthcoming policy review, despite the sluggish industrial growth," ICRA economist Aditi Nayar said.
The inflation in the recent past was more driven by local demand factors, expert say that high international commodity prices are adding to the problem.
Furthermore, Indian Overseas Bank chairman and managing director M Narendra said, “I think there would be some rate hike this week and could be some more in October policy if inflationary expectations are not anchored.” Besides, Corporation Bank chairman and managing director Ramnath Pradeep opined that they expected that the RBI will further hike interest rates.
