Mumbai, April 09: The Reserve Bank of India (RBI) will likely raise policy rates and banks’ cash reserve requirements (CRR) by 25 basis points each before end-June, as growth concerns ease but worries about non-food inflation rise, Macquarie said in a note.
At least one of the rates may be increased in the Reserve Bank of India’s (RBI) quarterly policy review scheduled for April 20, wrote analyst Rajeev Malik in his report.
“The RBI should adopt a double-barrelled approach, and hike policy rates and CRR each by 25 bps,” he said, adding that even after the CRR hike, liquidity will be sufficient to facilitate government borrowing and add to loan growth.
The RBI had in January raised the cash reserve ratio (CRR) by 75 basis points before surprising the markets by hiking key lending and borrowing rates by 25 basis points each on March 19.
Industrial output is likely to have increased 16-17 percent year-on-year in February, while wholesale price index-based inflation for March will likely come in the 10-11 percent range, according to Macquarie’s estimates.
“We expect the IP details will reinforce that the growth momentum remains solid … Food inflation will come off further, but non-food inflation is becoming a bigger worry,” Malik said.
Macquarie sees GDP growth in the January-March quarter around 8.5 percent year-on-year, but said the monsoon season and international commodity prices will have an important impact on growth and inflation.
–Agencies