NEW
DELHI: With the Wholesale Price Index (WPI) for the month of November rising to
a 14-month high of 7.52%, the case for a rate hike by the Reserve Bank of India
(RBI) in its upcoming monetary policy review seems to have strengthened, say
analysts.
The repo currently stands at 7.75%, while the marginal standing facility is at
8.75%, maintaining a corridor of 100 bps. An interest rate increase will be
critical in another respect: as a protection from the effects of the withdrawal
of ..the stimulus programme by the US Federal Reserve.
The
repo currently stands at 7.75%, while the marginal standing facility is at
8.75%, maintaining a corridor of 100 bps. An interest rate increase will be
critical in another respect: as a protection from the effects of the withdrawal
of the stimulus programme by the US Federal Reserve.
Abheek
Barua, Chief economist at HDFC BankBSE -1.12 % said that RBI's actions will be
data dependant rather than some predetermined action on the trajectory of
inflation. "What I can say is that the WPI does not give any room for comfort.
Based essentially on the CPI, there will be rate action, and we are expecting
25 basis points," Barua said.
Barua
however is of the opinion that a rate hike may not be the right solution to
help bring down inflation. "The irony is that raising rates isn't helping.
I think the government will have to get down to more active supply management
because the problem is largely with vegetables and meat and fish, which is the
protein basket," he added.
Sujan
Hajra, Chief Economist at Anand Rathi Securities feels that a 25 basis points
rate hike is likely. "I am looking at a total 50 bps of hike for the
financial year. I don't think the government will be completely averse to a
rate hike as it has said that inflation remains its biggest worry," he
opined.
Echoing
the same sentiment, Rupa Rege Nitsure, Chief Economist at Bank of BarodaBSE
-0.39 % said, "Earlier I was expecting only 25 bps hike in repo rate, but
now I am looking at either a 50 bps CRR or a 25 bps hike in repo and 25 bps in
CRR."
According
to Nitsure, "The pressures are across the board. Rupee depreciation,
diesel price increases are all pushing up inflation. If the RBI really wants to
have effective monetary policy transmission, they should hike CRR ( cash
reserve ratio) by 50 bps as liquidity is sloshing around and that is adding to
aggregate monetary demand."
Saugata
Bhattacharya, Chief Economist at Axis BankBSE 1.67 % feels that the language of
the monetary policy statement will be very tough. "The bulk of the
probability is still a 25 basis point rate hike, but given the significantly
higher CPI and WPI number a 50 basis points cannot be ruled out."
"Earlier
we were expecting the RBI to pause in December policy and raise the rate to 8
percent in January, but after the CPI and WPI data we expect two more rate
hikes - one in December and another in January taking the repo rate to 8.25 per
cent" Bhattacharya added.
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