RBI may hike rates in January

RBI may hike rates in January

New Delhi: With a strong likelihood of food inflation firming up further from double digits, the Reserve Bank may raise key policy rates to tame rising prices at its policy review on 25 January.

The RBI had left key short-term interest rates unchanged at its mid-quarter review earlier this month, but said that it should not be interpreted as a reversal of tight monetary policy undertaken from the start of this year.

Deloitte principal economist Shanto Ghosh said the central bank may again tighten monetary policy to tame inflation. “RBI is likely to hike repo and reverse repo rates by 25 basis points each in January."

The weekly food inflation was back in double digits after three weeks in December. The inflation was 12.13% for the week ended 11 December.

Axis Bank chief economist Saugata Bhattacharya also said that the RBI would go in for a marginal rate hike to balance the demand-supply mismatch in the market.

“The RBI will take measures to check the money supply in the system," he added.

Food inflation index constitutes over 14% of the overall WPI inflation which was at 7.48% for November.

Economists expect the number for December to be higher as high food prices and the impact of petrol price hike would be taken into account.

State-owned oil companies hiked petrol prices on 15 December.

Last week, a deputy governor of the Reserve Bank had indicated that the apex bank is contemplating further monetary policy tightening measures as inflation is not easing as fast as the apex bank would have liked and upside risks remained high.

In its mid-quarterly review earlier this month, the RBI had lowered the statutory liquidity ratio (the portion of deposits that banks keep in government securities, cash and gold) by 1 percentage points to 24%.

But maintained the repo and reverse repo rate at 6.25% and 5.25%, respectively.

It also kept the Cash Reserve Ration, the percentage of deposits banks park with the RBI, unchanged at 6%.

“Such provision of liquidity should not be construed as a change in the monetary policy stance since inflation continues to remain a major concern," the RBI had said.

In 2010, the RBI hiked the short term lending (repo) and borrowing (reverse repo) rates six times.

The central bank announces monetary policy after meeting with the chief executives of major scheduled commercial banks.