Mumbai: We expect the Reserve Bank of India (RBI) to announce a 25-basis-point hike each in the repo rate and the cash reserve ratio (CRR) on July 29, 2008.
Double-digit inflation rate at present, doubts over the kharif output owing to a weak south-west monsoon this year, higher-than-targeted growth in both money supply and credit off-take; and the worsening trade deficit are likely to influence the outcome of the central bank’s review meeting.
All these factors are expected to prompt monetary actions aimed at controlling the aggregate demand.
On a positive note, banking sector reforms are expected to gain momentum after the recent political churning that resulted in the ouster of the Left parties from the ruling coalition.
The government is expected to take a relook at reforms such as privatization of pensions, abolition of the cap (10%) on the voting rights of banks and increased foreign direct investment (FDI) limit in the insurance sector.