RBI to raise rates on Oct. 25 before pause: Poll
   
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RBI to raise rates on Oct. 25 before pause: Poll

Last Updated: Tuesday, October 18, 2011, 18:00
 
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RBI to raise rates on Oct. 25 before pause: Poll
Mumbai: The Reserve Bank of India (RBI) is widely expected to deliver one final interest rate increase at its policy review next week and then pause until the end of the fiscal year in March, a poll of 30 economists showed.

Of those polled, 17 expect the Reserve Bank of India to increase the key lending rate by 25 basis points on Oct. 25, while 13 expect it to hold the rate.

The median forecast is roughly in line with estimates in a smaller poll conducted immediately after the RBI raised rates in mid-September and indicated more was to follow. Since then, global and domestic indicators have pointed to weakening economic conditions.

A rate increase in India would be the 13th in 19 months and would take the repo rate to 8.50 percent.

India's inflation barely budged in September at 9.7 percent, staying above 9 percent for the 10th straight month, driven by higher fuel and power prices.

"While clearly there are signs that globally the situation is extremely uncertain and there is some amount of headwind on domestic growth, the RBI has been very forthright in maintaining that it wants to control inflation," said Sujan Hajra, chief economist at Anand Rathi Securities.

"From that perspective, inflation control will remain RBI's key objective."

While other central banks are easing monetary policy or considering doing so, the RBI has been among most aggressive globally and is reluctant to press the pause button yet amid sticky inflation. For a take a look on other central banks see:

The RBI last week reiterated that controlling inflation remains a priority.

"We are aware that some central banks in Asia and some outside Asia have reversed...Those circumstances are quite different from ours," RBI Governor Duvvuri Subbarao had said last week.

Worries over the slowdown in advanced economies and slowing growth at home is expected to prompt the RBI to pause in its tightening cycle after October, analysts said.

The median estimate for the repo rate at end-June 2012 is 25 basis points lower at 8.25 percent, compared with the mid-September snap poll.

Of 23 respondents, 18 said the RBI's monetary tightening thus far has been appropriate, while four said less aggressive tightening is needed, and one called for a more aggressive stance.

Bureau Report



First Published: Tuesday, October 18, 2011, 18:00


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