"The high inflation necessitates swift policy response ... We now expect the repo and reverse repo rates to be increased by one per cent in the current fiscal...The CRR is also expected to be increased by 0.75 per cent during the second half of FY09," StanChart said in its report today.
In a bid to check the runaway inflation, the Reserve Bank had hiked the CRR by 0.75 per cent in two tranches, besides effecting a 0.25 per cent hike in repo rate.
Despite good monsoon expectations, the headline inflation could still be at an average 9.2 per cent in the current fiscal, it said.
"Based on our estimates, inflation could still be at 9.2 per cent, against our earlier estimate of 8.72 per cent for FY 08/09," StanChart said.
The tax concessions on fuel prices, issuance of oil bonds and fertiliser subsidies are already taking a toll on the fiscal balance, which could push the fiscal deficit of the government to above 6.5 per cent of GDP as against the budgeted deficit of 2.5 per cent, it said.
"A higher fiscal deficit not only will crowd out private investment, but also likely to be inflationary as well," Stanchart said.
