RBI will go for another 0.25% rate hike in August MPC meeting; MSP hike to spur inflation: BNP Paribas

Mumbai: Brokerage BNP Paribas on Friday said the Reserve Bank of India (RBI) will go for another 0.25 percent hike in key policy rates at its August monetary policy review, a day after an official data showed retail inflation rising to a five-month high of 5 percent in June.

"Consumer price inflation points out to a hike in August," the French Brokerage said in a note, adding it expects the RBI to hike the repo rate by 0.25 percent to 6.5 percent.

It said the price is higher than the RBI's medium-term target of 4 percent and the risks to inflation going forward are tilted on the "upside".

Representational image. Reuters

Representational image. Reuters

The upside risks to the price rise come primarily from the hike in minimum support prices (MSP) for foodgrains procurement and also the hike in wages, it added.

"Even though the hike in MSP came in lower than what the brokerage initially expected, it will fan the inflation print," the brokerage said, estimating that the headline inflation will come at 4.5 percent for March 2019.

Apart from MSP, it said salary hikes for government employees, especially in the housing component, will lead to rise in the critical inflation number.

The RBI's rate-setting panel had hiked the repo rate by 0.25 percent at the June review. The central bank, however, had sticked to the neutral stance of the policy and
affirmed that its future actions will be data determinant.

The six-member monetary policy committee is slated to begin its three-day meet on rate review from 30 July and announce its resolution on 1 August.


Updated Date: Jul 13, 2018 18:53 PM

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