INSUBCONTINENT EXCLUSIVE:
major currency.
The Reserve Bank of India will probably increase the repurchase rate by 25 basis points to a two-year high of 6.5 percent on
surprise 25 basis-point hike, when the RBI tightened policy for the first time since 2014, following counterparts in Indonesia and the
Philippines in stepping up action to counter an emerging-market rout triggered by higher United States rates and a stronger dollar
The rupee is down almost 7 percent against the dollar this year.
The RBI will announce its decision at 2:30 p.m
in Mumbai followed by a press conference 15 minutes later
Here is what to watch out for in the statement:
Sticky CoreInflation has been accelerating sharply this year, reaching 5 percent in June, on
With the government offering higher prices to buy some crops from farmers, price pressures are expected to strengthen in the second half of
the fiscal year.
The RBI -- which in June projected inflation of 4.7 percent in the second half -- has a mandate to keep it at the 4 percent
midpoint of its target band in the medium term.
As the economy strengthens, there are signs that demand pressures are stoking inflation
Core-price growth -- which strips out volatile food, fuel and light prices -- has been sticky at a four-year high of more than 6
remain elevated, and that growth recovery may now be gaining momentum on improving demand, another rate hike of 25 basis points, is our base
in Mumbai.
Pipeline prices indicate inflation will remain under pressure
Wholesale prices quickened to 5.77 percent in June, the highest since December 2013, while the RBI expects higher input prices to be passed
on to consumers.
Food PricesThe government recently increased the minimum support prices for summer crops, which UBS Group AG estimates will
boost the inflation rate between 35-70 basis points, depending on the procurement policy
Added to that is the risk of a shortfall in monsoon rains, which could boost food costs further.
What Our Economists SayThe consensus
forecast is for the Reserve Bank of India to raise rates again at its August review to contain inflation
Risks to growth are increasing, and inflation is probably on a downward trajectory after peaking in June
With borrowing costs already on the rise, additional tightening would amplify the debt burden for businesses and inflict more damage on
confident that the economy is rebounding from the twin shocks of a cash ban in 2016 and the chaotic implementation of a consumption tax in
It expects the output gap to narrow in the coming months, which in turn will drive inflation higher.
High frequency indicators from
central bank shifts its stance to hawkish from neutral, a signal of more policy tightening in the months ahead
The spotlight will be on Governor Urjit Patel, who heads the six-member monetary policy committee and has a casting vote
more tightening.
Of the three external members, Chetan Ghate, tends to have a balanced view, while management professor Ravindra Dholakia is
a dove and economist Pami Dua usually votes with the majority.
