RBI to hike repo rate by 0.25%: Economists

Reserve Bank of India may soon raise the interest rate for short-term
lending to banks once again as a measure to control the unabated rise
in inflation that shot to 13-year high at 11.05 per cent, economists
said.

The short-term lending rate (repo rate) is currently ruling at 8.0 per
cent and this may be increased to 8.25 per cent even before the July
policy announcement.

It is quite possible that RBI may increase the repo rate by a quarter
per cent before July policy review, HDFC Bank Chief Economist Abheek
Barua said.

The hike could come in the next 10 days, he said, adding, depending on
the situation RBI could also increase the Cash Reserve Ratio-- the
ratio of deposits which banks have to keep with RBI.

The central bank would come out with quarterly review of the Credit
Policy on July 29.

According to Saumitra Chaudhuri, member of Prime Minister's Economic
Advisory Council, the unexpected surge in inflation is due to revision
of non-sensitive fuel items like light diesel oil, naphtha, furnace
oil and bitumen.

"All of it has come during the week pushing inflation by additional
one per cent," he said.

There is lot of pressure on interest rates. RBI may further tighten
the monetary policy in order to anchor inflation to reasonable level,
Chaudhuri said.

The monetary authority could raise repo or CRR depending on the
condition, he added.

Any change in key policy rate or ratio by RBI would force the banks to
revise both deposit and lending rates to maintain its margin which is
already under pressure.