RBI may up key rates by 50 bps: DBS

RBI may up key rates by 50 bps: DBS

Mumbai: In a bid to control inflation, the central bank is expected to raise the repo, reverse repo and cash reserve ratio (CRR) rates by 50 basis points (bps) each at its monetary policy review meet on 20 April, DBS said in a note on Monday.

“Inflation is increasingly a risk and it is important that the central bank not fall behind the curve," Ramya Suryanarayanan, economist at the bank wrote.

Wholesale price index (WPI) based inflation rose 9.90% from a year earlier, data showed on Thursday, below a Reuters poll median forecast of a 10.39% rise and keeping inflation on par with February’s annual rate of 9.89 percent.

March inflation, the strongest since October 2008, reflected a sharp pick-up in price pressures this year, which prompted the Reserve Bank of India (RBI) to raise interest rates in mid-March for the first time since the global downturn.

DBS expects inflation in the current fiscal year to average 6.5% and ease to 5.3% in the next fiscal year.

“We think the only way to keep inflation under check is to tighten policy," Suryanarayanan added.

While the bank acknowledged that there were concerns that such a move would result in heavy foreign fund inflows, thereby strengthening the rupee, this problem would have to be dealt with other tools.

“We think the interest rate level that is appropriate for the economy cannot be sacrificed at any cost, as such a move would plainly destabilize inflation," according to the note.