The Reserve Bank of India may again raise short-term lending rate and mandatory cash reserves by 25 basis points each in its mid-term review slated for October 24 to bring down inflation to 7 per cent by this fiscal-end, financial sector experts said on Tuesday.
The United States-based investment bank Goldman Sachs said: "We expect a tightening bias will remain in the policy in the near term and now expect a hike of 25 basis points in the repo rates and CRR respectively by end October."
In its first quarterly review of the credit policy, RBI increased short term lending rate (repo rate) by 0.5 per cent with immediate effect while cash reserve ratio was increased 0.25 per cent that would come into effect from August 30.
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Echoing views of the investment banker, Crisil's principle economist D K Joshi said RBI could raise repo rate by another 25 basis points by October as a pre-emptive measure to curb liquidity and anchor inflationary expectations.
Inflation for the week end July 12 stood at 11.89 per cent as against 11.91 per cent in the previous week. According to ICICI Bank joint managing director Chanda Kochhar, "We would see a regime of high interest rates for sometime."
Another investment banker Barclays Capital projected that by the end of 2008 RBI would raise repo rate by 200-250 basis points. In addition, the CRR would be increased by 125-175 basis points by the year-end, it said.
Since the beginning of the current fiscal RBI has hiked the repo rate by 125 basis points and CRR by 150 basis points. Presently, Repo rate and CRR stands at 9 per cent each.
HDFC Bank chief economist Abheek Barua said: "We expect to see another 50-75 basis points hike in repo rate in the near term."
With the RBI setting FY'09 GDP growth target at 8 per cent, besides taming inflation, couple of more interest rate hikes are likely to come," he said.
However, Goldman Sachs said that rates will start easing from Q1 2009 as inflation begins to come off.
RBI expects to bring down inflation to 7 per cent by March next year as against over 11 per cent prevalent currently.
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