Press Esc to close
Friday 28 November 2014
News updated at 7:42 PM IST
Weather
Max: 29.2°C
Min : 16.5°C
In Bengaluru
Sunny day

RBI likely to raise repo rate by 0.25% to tame inflation

New Delhi, Dec 17 , 2013 (PTI)
Governor Raghuram Rajan Reuters Image

With food prices showing no signs of abatement, the Reserve Bank is likely to hike its key policy rate by 0.25 per cent tomorrow, the third straight increase under Governor Raghuram Rajan as part of the war against inflation.

Wholesale Price Index inflation in November climbed to a 14-month high of 7.52 per cent as prices of food items such as onions and potatoes surged. Consumer price inflation touched a nine-month high of 11.24 per cent last month.

Factory output shrank 1.8 per cent in October, the first contraction in the Index of Industrial Production (IIP) in four months.


"Crucially, core inflation as well as non-food manufacturing inflation rose marginally in November. As a result of rising price pressures, RBI is likely to raise the repo rate by 0.25 per cent to 8 per cent on December 18 in its monetary policy review, despite a still-shrinking industrial sector," Crisil said.

Given the price rises at both the retail and wholesale levels, the RBI, with inflation control as its prime objective, is set to hike the repo rate once again later this week, it said.

Axis Bank chief economist Saugata Bhattacharya believes the probability of a 25 basis point rate hike is more, but "a 50 basis point rate hike is not off the table."

However, Indian Overseas Bank Chairman and Managing Director M Narendra said the RBI could maintain status quo in its mid-quarter review if it perceives food inflation moderating in the coming days with improved foodgrain production.

RBI Governor Rajan, who delivered two repo rate hikes of 0.25 per cent each in as many policy reviews since he took over on September 4, had mentioned that he considered fighting inflation as the central bank's "key responsibility."

According to HSBC chief economist for India and Asean, Leif Lybecker Eskesen, while improved food supplies may help reduce food inflation in coming months, the sticky and high CPI headline and core inflation is testament to the strong underlying inflation pressures in the economy.

The RBI will likely deliver another 25 basis point rate hike in the upcoming policy review, he said.

Bank of America-Merrill Lynch concurred, saying a 0.25 per cent hike on December 18 is a "done deal" and adding that along with the hike, the RBI could also seal the shift of the money market to the repo mode from the marginal standing facility.

Go to Top

Photo Gallery
Prime Minister Narendra Modi on his departure after attending SAARC summit...

Prime Minister Narendra Modi on his departure after attending SAARC summit...

A boy salvages for belongings amid the debris of his house in Mumbai...

A boy salvages for belongings amid the debris of his house in Mumbai...

Shyam Benegal with Naseeruddin Shah during the launch of the latter's book...

Shyam Benegal with Naseeruddin Shah during the launch of the latter's book...

Actor turned politician Kushboo with Congress vice president Rahul Gandhi...

Actor turned politician Kushboo with Congress vice president Rahul Gandhi...

An Indian army soldier keeps vigil near Pindi Khattar village...

An Indian army soldier keeps vigil near Pindi Khattar village...

Men play soccer at a field in Peshawar...

Men play soccer at a field in Peshawar...

NorthEast United FC players celebrate their third goal against Chennaiyin FC...

NorthEast United FC players celebrate their third goal against Chennaiyin FC...

An injured soldier is taken to hosp during a gunbattle with militants at Pindi Khattar village...

An injured soldier is taken to hosp during a gunbattle with militants at Pindi Khattar village...

Netanyahu attends the annual memorial ceremony for Israel's first prime minister, David Ben-Gurion..

Netanyahu attends the annual memorial ceremony for Israel's first prime minister, David Ben-Gurion..

Sharif holds hands with  Modi and  Ashraf Ghani during the closing session of the SAARC summit...

Sharif holds hands with Modi and Ashraf Ghani during the closing session of the SAARC summit...

Copyright 2014, The Printers (Mysore) Private Ltd., 75, M.G Road, Post Box 5331, Bengaluru - 560001
Tel: +91 (80) 25880000 Fax No. +91 (80) 25880523