Economists, analysts hail RBI's rate hike

Leading economists and analysts have welcomed the strong monetary measures announced by the Reserve Bank of India (RBI) today to bring down high inflation, saying rising prices are a bigger worry than a growth moderation.

They remained mixed in their view on whether this signals a pause to the spate of rate spikes in the near term.

"The RBI perhaps is doing the right thing by focusing on inflation and sacrificing 50-75 bps on the growth front. An 8% growth rate, with moderate inflation, is a much more desirable scenario than a higher growth, but with double-digit inflation," Ernst & Young national leader for global financial services Ashvin Parekh said.

Parekh also said this probably could be a signal to the spate of rate hikes even as there is a drop in credit offtake since the Q1, which is expected to further slow to around 18% from the current 20.1% due to today's action.

"However going forward, I do not expect any rate hikes for the next quarter," Parekh said.

Earlier in the day, RBI upped its key short-term lending rate by 50 bps to 8% and warned that inflation would continue to rule high and revised its projections upwards to 7% from 6% in May.

Today's move signals that the RBI is taking a much stronger anti-inflationary policy stance and the regulators' concern seem to tilt towards caution as with the rising signs of growth moderation RBI could have paused (hiking lending rates), Parekh pointed out.

"The monetary policy was announced in the backdrop of sticky inflation, growth moderation and uncertain global economic conditions. Today's hike in the repo rate by 50 bps is mainly to control inflation, especially non-food manufactured inflation, which is going out of hand," Fitch Ratings India Director Devendra Kumar Pant said.