RBI to hold rates for now, 50 bps hike likely in 2018: Nomura

New Delhi: The Reserve Bank of India (RBI) is expected to keep rates on hold this year as near-term inflation outlook is benign, but a cumulative 50 bps hike in 2018 is likely as growth accelerates, says a report.

RBI

RBI

According to Japanese financial services major Nomura, the RBI is looking through the current low inflation prints and may keep policy rates unchanged in 2017. However, as growth and inflation pick up, a move towards tightening the policy bias with a cumulative 50 bps repo rate hike in 2018, starting next April, is expected.

Retail inflation based on consumer price index (CPI) dropped to 2.99 percent in April over last year, mainly due to lower cost of food items, including pulses and vegetables. Wholesale inflation data this time were based on new series with revised base year of 2011-12 as against 2004-05. The WPI-based inflation, based on the new series, slipped to a four-month low of 3.85 percent in April as both food articles and manufactured items eased. Though the near-term inflation outlook is very benign, Nomura expects headline CPI inflation to rise sharply to 5.5-6 percent in the fourth quarter of 2017 and first half of 2018, before stabilising around its steady state of around 5 percent in the second half of 2018.

“... as growth accelerates due to lagged effects of easier financial conditions and as it becomes clear that inflation will continue to stay above its medium-term target of 4 per cent owing to still-elevated inflation expectations, we expect the RBI to move towards a tightening policy bias towards end-2017 and hike repo rates by a cumulative 50 bps in 2018, starting next April,” the report added.

Earlier last month, the RBI left key policy rate unchanged at 6.25 percent for the third review in a row, citing upside risks to inflation. It had, however, increased the reverse repo rate—which it pays to banks for parking funds with it—by 0.25 percent to 6 percent, narrowing the policy rate corridor.


Updated Date: May 15, 2017 17:07 PM

Also Watch

Watch: Firstpost test rides the new Thunderbird 500X in Goa and walks you through the Royal Enfield Garage Cafe
  • Tuesday, April 17, 2018 Varun Dhawan on Shoojit Sircar's October, 5-star reviews and working with Anushka Sharma in Sui Dhaaga
  • Saturday, April 14, 2018 Ambedkar Jayanti: Re-visiting Babasaheb's ideals exposes fake Dalit politics of Rahul Gandhi and Congress
  • Monday, April 9, 2018 48 hours with Huawei P20 Pro: Triple camera offering is set to redefine smartphone imaging
  • Monday, April 16, 2018 Rajyavardhan Singh Rathore interview: Sports can't be anyone's fiefdom, we need an ecosystem to nurture raw talent

Also See