Reserve Bank of India to hike rates by 25 basis points tomorrow

Tuesday, 26 July 2011 00:00 - - {{hitsCtrl.values.hits}}

NEW DELHI: The Reserve Bank is likely to hike its policy rates by 25 basis points in its first quarterly monetary policy review on Tuesday, according to a survey conducted by industry chamber Ficci.

The survey said that even as a majority of respondents feel that the RBI would tighten its monetary policy further tomorrow, there was a near consensus that the process could be nearing the end. The RBI has increased its key rates 10 times since March, 2010 to tame rising inflation.

They have gone up by 250 basis points (2.5 per cent) since then, making loans costlier for both industry as well as consumers.

With signs of a slowdown in interest rate sensitive sectors now being quiet evident and decline in demand for term loans, the survey said that RBI could consider changing its stance from aggressive monetary tightening to a neutral one going forward.

However, a change of stance might not get reflected in RBI policy statement on Tuesday.

"This is because headline inflation continues to hover near double-digit level and is likely to move further up in the coming months, reflecting the full impact of the fuel price hike," the survey said. Ficci surveyed 13 economists and financial analysts, largely from the banking, financial sector and research institutions. Ficci's survey matches the expectations of ratings firm ICRA which expects the RBI to hike rates by 0.25 per cent.

"RBI is unlikely to pause the rate tightening cycle at present and would increase the repo rate by 25 bps in the upcoming policy review in order to dampen inflationary expectations,"ICRA Ltd MD & CEO Naresh Takkar said.