Mumbai: The Reserve Bank of India is
likely to wait for a further rise in inflation before it
raises its benchmark lending and borrowing rates around
December or January, HDFC Bank said on Thursday.
The private sector lender, however, expects RBI to
hold key rates in its monetary policy review due next week.
"Our bet is that the RBI will wait until December-
January period when inflation actually spikes up before
changing policy rates. However, we continue to believe that
the policy will maintain status quo (on Oct 27)," HDFC Bank
Chief Economist Abheek Barua said in a note.
He said it was unlikely for the RBI to embark on an
"aggressive rate hike cycle", even if it were to move rates
"If the central bank is indeed looking for reasons to
delay its exit from its super-accommodative monetary stance,
the recent inflation prints certainly gives it one," he said.
India`s wholesale price index (WPI) inflation rose to
1.21 percent for the week ended October 10 from 0.92 percent
in the previous week. HDFC Bank expects WPI inflation to
moderate in the second half of FY10.
Barua said a robust industrial production data for
August at 10.4 percent has raised the probability of a rate
hike in the October 27 policy.
RBI may, however, need more confirmation that India
has climbed out of the bottom of the industrial cycle before
it takes a decision on rates, he added.
The central bank may also carry out some `indirect
monetary tightening` over the next two months to drain out
excess liquidity from the system, he said.
"Some indirect monetary tightening is likely over the
next couple of months. For one, the RBI could reduce the
quantum of OMO purchases form the market. Second, the RBI is
unlikely to intervene aggressively in the forex markets as
intervention would add to local liquidity," Barua said.
He said the apex bank would also needs to be vigilant
as demand may drive up pricing pressures before 2011.