Mumbai: The Reserve Bank of India is likely to keep its benchmark lending and borrowing rates unchanged in its monetary policy review next week, but may start hiking them from April 2010, according to Macquarie Research.
"We maintain that the RBI would keep rates unchanged next week, and probably begin hiking them from April 2010," Macquarie research analyst Rajeev Malik said in a report.
"The RBI can also keep the cash reserve ratio (the amount of funds that banks have to park with RBI) unchanged on October 27, but may hike it before the next review in January 2010," Malik said.
At present, the cash reserve ratio (CRR) stands at five percent, while the repo rate (the rate at which banks borrow from RBI) is at 4.75 percent and reverse repo (the rate at which RBI borrows money from banks) stands at 3.25 percent.
He said premature tightening would attract more capital inflows, which could complicate monetary and rupee management.
India`s apex bank will announce its mid-yearly credit policy on October 27.
The research firm said credit offtake in the country remained less than desired while the trend in loan-deposit ratio was uninspiring.
Macquarie expected India`s wholesale price index (WPI) inflation to shoot up to 7 to 7.5 percent by end-March 2010, higher than RBI`s estimate of five percent.
"We expect WPI inflation at around 7.0 to 7.5 percent by end-March 2010, but the effect of the drought on food inflation will be temporary at worst," Malik said.
Hiking policy rates, however, would not help battle higher food inflation but could hit growth upturn, he added.
Inflation rose to 0.92 percent during the week ended October 3 from 0.70 percent a week ago.
The financial research firm said RBI may look at mopping up excess liquidity from the system before it hikes rates.