INSUBCONTINENT EXCLUSIVE:
About 40% of the economists polled expected a hike next week.
BENGALURU: The Reserve Bank of India (RBI) will hike rates in August on concerns that already above-target inflation will
climb further, according to economists in a Reuters poll, in contrast to a survey just a month ago which saw an increase only in the second
That dramatic shift in expectations was driven by the annual consumer price inflation accelerating in April to 4.58 per cent, above the
central bank's target of 4 per cent for the sixth month in a row, after easing in each of the three previous months.The May 24-30 poll of
nearly 60 economists showed the RBI will hike its repo rate by 25 basis points to 6.25 per cent in August.While the median suggests the RBI
will keep rates on hold when it meets on June 6, about 40 per cent of the economists polled expected a hike next week."As global market
turmoil takes its toll, we are changing our RBI policy rate call from an extended pause to a 25 basis point hike at the August meeting,"
said Kunal Kundu, India economist at Societe Generale."The RBI may announce a change in policy stance during the June meeting and follow
that up with a hike in August."Kundu said that while RBI's inflation expectation has been "erring on the side of hawkishness, with actual
inflation mostly relatively underwhelming, the latest inflation data, though not too high, raises the prospect of a rate hike.The inflation
rate increased due to higher domestic food costs and crude oil prices, which hit $80.50 a barrel on May 17, their highest since November
2014.With the country importing 80 per cent of its fuel needs and government spending increasing before national elections next year - which
will likely add to price pressures - expectations have firmed for the RBI to move away from a neutral stance next week.Out of 42 economists
who answered an extra question, 24 said they expect the central bank to change its monetary policy stance to a tightening bias in June
More than 35 per cent anticipated that in August.Just last month, a majority said the RBI would turn hawkish by December.Currently, the RBI
estimates consumer inflation of 4.7-5.1 per cent in April-September before dipping to 4.4 per cent for the remainder of this fiscal year.A
total of 19 out of 31 economists who answered another question said the RBI would revise inflation projections up
Eleven said it would be unchanged and one said it would be revised down."The RBI cut its inflation forecasts based on the weakness of
observed inflation the first couple of months of the year, so it was not premature to cut the forecasts," said Shilan Shah, senior India
economist at Capital Economics."It did note some upside risks to the inflation outlook, some of which have come to fruition
So it is likely that forecasts will now be revised up."The first three months of 2018 likely saw the fastest economic expansion since
Data for the latest quarter will be announced later on Thursday.More than 80 percent of the 30 economists who answered an extra question
said the RBI would keep its growth projections for 2018/19 unchanged
edited by TheIndianSubcontinent staff and is published from a syndicated feed.)
