RBI may raise policy rates to rein in inflation: Ficci

The RBI may go for another round of hiking the short term lending and borrowing rates by 25 basis points each, next week on concerns of high inflation, a Ficci survey said.

The RBI move to raise short term policy rates is likely to reduce demand for consumer durables, it said.

The Reserve Bank is scheduled to announce its second quarterly monetary policy review on November 2.

"Majority of the participating economists expect RBI to further hike both the repo and the reverse repo rate on November 2, 2010, by 25 basis points each," said the Ficci Economic Outlook Survey.

Repo is a short-term lending rate of RBI to banks, while reverse repo is short-term borrowing rate.

Most economists, however feel that given the tight liquidity situation, the central bank would refrain from raising Cash Reserve Ratio (CRR), which is a portion of deposits that banks keep with RBI in cash.

The RBI has raised interest rates five times this year, taking the repo rate to 6 per cent and the reverse repo rate to 5 per cent, to control inflation, which was in double- digits for six months since July.

Ficci said 19 economists of "repute" participated in the survey conducted during October 6-22.

"Inflation, particularly food inflation, continues to remain a major concern. What is perhaps more important is the steady rise in inflation expectations as revealed by the RBI’s latest survey released in June 2010," it said.

However, food inflation declined sharply to 13.75 per cent for the week ended October 16, on improved supplies and fall in prices of certain vegetables, especially potatoes and onions.

There was a near consensus amongst economists that the present cycle of increasing interest rates will have a limited impact on corporate investments, there would be slackening demand for consumer durables in the coming months.

Most of them were of the opinion that the rising rates would moderate the demand for consumer durables in the near to medium term.

On the GDP growth, the economist agree with the government's projection of 8.5 per cent growth this fiscal.