RBI may hike policy rates in Sept review: D&B

The Reserve Bank of India (RBI) may go for further hike in policy rates in its mid-quarter review next month as part of its efforts to tame inflationary pressures, consultancy firm Dun & Bradstreet (D&B) said.

"In order to tackle the mounting inflationary pressures, we expect that the RBI would further tighten its monetary policy stance in the mid-quarter review of monetary policy scheduled in September," Dun & Bradstreet(D&B)India Senior Economist Arun Singh said.

Containing inflationary pressure is at the fore-front of RBI's policy agenda currently. The apex bank has in a span of three months hiked bank lending (repo) and borrowing (reverse repo) rate by 50 basis points and 75 basis points, respectively.

 

Currently, the repo rate is at 5.75 per cent and reverse repo stands at 4.50 per cent. D&B said that some softening in prices would come in mid September as higher base of last year would make the rate of inflation lower.

The WPI inflation came down to single digit at 9.97 per cent in July, after remaining in double digit for five consecutive months. "The WPI inflation is expected to moderate further after September 2010 given the high base effect which is expected to set in after September, the lagged impact of monetary tightening by the RBI and prospects of better agriculture production in anticipation of normal monsoon during this season," D&B said.

However, it said that the pace of moderation in overall inflation is expected to be slow given the recent hike in fuel prices. D&B expects the inflation to be around 9.5-9.7 per cent during August 2010.

During the current fiscal, D&B expects RBI to bring in a further hike of 0.25 per cent in repo and reverse repo rate and cash reserve ratio (the amount of deposits banks park with the RBI) by 0.50 per cent. Besides, D&B expect to see a robust 8-9 per cent growth in the Index of Industrial Production in July.

Industrial growth slid to 7.1 per cent in June, after snapping an eight-month trend of double-digit rise, from 8.3 per cent a year ago.