The Reserve Bank of India may raise both its lending and borrowing
rate by 25 basis points each at a policy review next week as it steps
up its battle against inflation, Development Bank of Singapore said on
Tuesday.
Wholesale price inflation hit a three-year high of 7.41 per cent at
end-March and has eased to 7.14 per cent in the 12 months to April 5,
but is still above the central bank's stated comfort zone of 5 per
cent for 2007/08.
"Should oil prices remain above $100 per barrel, inflation could
surpass 9 per cent in the third quarter of 2008 and average over 7.5
per cent in 2008/09," Ramya Suryanarayanan, economist at the bank
wrote in a note.
"Against this backdrop, and given the apparent political will to
tackle inflation, we have brought forward our forecast for two 25
basis point rate hikes in the repo and reverse repo by a quarter," she
said.
"We now expect the first rate hike to come at next week's policy
meeting." The Reserve Bank of India (RBI) will announce its annual
monetary policy on April 29.
RBI last week announced an increase in the banks' cash reserve
requirement (CRR) by 50 basis points to 8 per cent, the highest since
2001.
The increase, which will be implemented in two stages of 25 basis
points each on April 26 and May 10, will drain Rs 18500 crore of
inflation-fuelling cash from the banking system.
"That the CRR hike came two weeks before the policy meeting suggests that the government wants to be seen as taking action," the bank said.
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