RBI may hike key rates by 25 bps

To check inflation, the interest rates increased eight times since March 2010

The headline inflation (WPI) stood at 8.98 per cent for March, much above the RBI’s projection of 8 per cent, fuelling speculation that the central bank may go in for another hike in the repo (lending) and reverse repo (borrowing) rates.

“We are definitely expecting a rate hike. While we do see a 25 basis points (bps) hike in repo and reverse repo rates, it is also likely that the RBI could hike both rates by 50 bps each,” Yes Bank Chief Economist Subhada Rao said.

Referring to 8.98 per cent inflation in March, she said: “These are very, very disturbing numbers. The sharp upward movement in core inflation is at 29-month high. For RBI this is going to be of great concern, as demand is extremely robust.” Expressing similar views, Crisil Chief Economist D K Joshi said, “We expect the RBI to hike repo and reverse repo rates by 25 bps each in its May policy review.”

“Another hike of 25 bps in the next policy meeting is a certainty,” opined Tushar Poddar, Chief India Economist at Goldman Sachs. The repo rate is 6.75 per cent and reverse repo is 5.75 per cent. In order to check rising prices, the RBI has raised the key policy rates eight times since March 2010.