Reserve Bank may hike rates again in August on rising inflation, elevated crude oil prices: Analysts

Mumbai: Headline inflation surging to a four-month high of 4.87 percent in May is likely to force the Reserve Bank of India (RBI) to hike rates once again at its August monetary policy review, analysts said.

The commentary comes a day after industry body Confederation of Indian Industry (CII) said that monetary policy tightening will increase the cost of doing business and force India Inc to slowdown on investments, which are critical for pushing the growth agenda.

"With both core and headline inflation only likely to face greater upside pressure from various factors in the coming months, we continue to expect one more 0.25 percent rate hike from the RBI. This could occur as soon as the 31 July-1 August meeting," analysts at the French brokerage BNP Paribas said in a note.

UBS Securities said a hike is "likely in August".

RBI. Representational image. Reuters

RBI. Representational image. Reuters

"If global crude prices remain at current levels and core inflation remains elevated, the next rate hike could be announced sooner (likely in August) than later," it said, adding that the announcement of minimum support prices for agri produce will be watched keenly.

Analysts at German brokerage Deutsche Bank also said they expect a 0.25 per cent rate hike by the RBI at the August review, saying an inflation targeting central bank will feel the need to tighten the policy based on these "signals" from inflation.

However, Bank of America Merrill Lynch said base effects is driving up the inflation number and added that the RBI will be on "long hold".

Official data released yesterday said retail inflation jumped to a four-month high of 4.87 percent in May on costlier food items such as fruits, vegetables and cereals, coupled with high fuel rates.

In May last year, the retail inflation was at a low of 2.18 percent.

At its policy review last week, the apex bank had upped its retail inflation projection by 0.30 per cent and kept the policy stance in the neutral zone, even as it hiked the key rates by 0.25 per cent.


Updated Date: Jun 13, 2018 16:11 PM

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