RBI seen raising rates again in July, may pause after
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RBI is expected to raise its key policy rate by a further 25 basis points next week after inflation quickened in June and may hike once more by the end of the year, before pausing its long tightening campaign, a new Reuters poll shows.
Expectations that the repo rate will peak at 8 percent by end-2011 are largely unchanged from a previous forecast in mid-June, and hinge largely on whether persistently strong price pressures in Asia's third-largesy economy will soon begin to abate.
India's wholesale price inflation quickened in June to an annual 9.44 percent from 9.06 percent in May, driven by higher prices for manufactured goods and fuel, even as the economy showed signs of cooling.
Of the 23 analysts polled, 11 respondents expect the repo rate to rise by a total of 50 basis points (bps) by the end of the year, peaking at 8 percent.
Nine of the respondents expect the Reserve Bank of India to pause its rate hike cycle after raising the repo rate to 7.75 percent in July. Only 4 expected the RBI to take a break in September and raise rates again by December.
"We should start seeing signs of inflation stabilising in the next 2-3 months because there will be a lagged impact of the global commodity price correction," said Sonal Verma, a Mumbai-based economist at Nomura who expected the RBI to pause after a 25 bps rise next week.
"And of course the slowdown we are seeing in India will also have some positive impact," she said.
The central bank projects inflation will moderate to 6 percent by end-March 2012. It said in May that it expected inflation to cool down after September, adding to analysts' expectations that the policy tightening cycle will end this year.
The RBI has raised rates 10 times since March 2010 as it battles stubborn price pressures, including a quarter-point increase last month, ranking it among the most aggressive central banks in the world. ( ET )
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