New Delhi: The Reserve Bank is likely to
reverse its soft rate regime by as early as April next year
and increase its key policy rates by 125 basis points each by
2010-end due to rising food prices, global financial major
Citigroup has said.
"Headline inflation is now rising, inflation momentum is
notably picking up the most in India ... Korea is still likely
to hike first in Q1, 2010, followed by India and Singapore by
April 2010," Citi economist Anushka Shah said in a note.
Rising food prices have pushed the wholesale price-based
inflation (WPI) into positive zone and the consumer price
index for industrial workers into double digits, Shah said.
Food accounts for 57 percent in CPI and 14 percent in WPI.
Going forward, she expects prices to stay firm though
improved pulse production and high foodgrain stocks could be
mitigating factors. The headline WPI is likely to rise to 5
percent levels by December, she said.
"We expect RBI to begin its policy tightening cycle in
2010 and expect 125 bps of cumulative hikes in 2010. This
would take the repo and reverse repo rate to 6 percent and
4.50 per cent respectively, by the end of 2010," she said.
Currently, the repo rate (rate at which RBI lends to
banks) is 4.75 percent and the reverse repo rate (at which
RBI borrows from banks) is 3.25 percent. Since October 2008,
RBI slashed 425 bps in repo rate and 175 bps in reverse repo.
"Key factors to watch out for on this front are trends in
credit and non-oil import growth," she added.