Economists see RBI further hiking policy rates by 25 bps

With no sign of inflation moderating in the next few months, economists polled by the leading industry body Ficci expect a 0.25 per cent more hike in the policy rates by the Reserve Bank on July 27.

On July 2, the Reserve Bank had hiked both the short-term lending and borrowing rates by 25 basis points each to contain inflation.

"Majority of economists feel that the RBI would continue to move ahead on the path of monetary tightening and anticipate a hike of 25 basis points, each in the repo rate (rate at which RBI lends to banks) and reverse repo rate (rate at which RBI borrows)," Ficci said. The chamber said it had polled 14 "economists of repute".

The present repo and reverse repo rates are 5.50 per cent and 4 per cent, respectively.
    
The survey suggested that the core inflation would continue to remain around the present level (10.55 per cent) for next few months due to the recent fuel price hike, spatial distribution of monsoon and depreciation of rupee.
    
"What is more worrisome is that inflation is now spreading from primary articles to fuel and manufactured goods. The recent fuel price revision will have an inflationary impact in the months ahead," the chamber said.
    
It said, although, inflation is expected to ease by the 2010 end, there is still a lot of concern that is seen "with regard to movement of this variable in the days ahead".
    
The economists said high prices "are eating into budget of middle class population as far as their outlay for industrial produce is concerned".
    
They said the price rise could impact growth, though it is expected to be 8.5 per cent for the current fiscal.
    
The Gross Domestic Product for the first quarter (April-June) is expected to be about 9 per cent, according to Finance Ministry's Chief Economic Adviser Kaushik Basu.

Meanwhile, a CII-Asco study said India's manufacturing sector continues to maintain the growth momentum during the April-June quarter year-on-year.
    
The share of the sectors registering negative growth rate has significantly declined to 15.5 per cent in the quarter from 41 per cent last year, it said.
    
"Actions such as faster implementation of ongoing and already announced projects, improving regulatory environment, early implementation of the proposal to create National Manufacturing Investment Zones, ensuring timely availability of credit... Are vital to higher manufacturing growth," CII Director General Chandrajit Banerjee said.