RBI seen raising repo rate by 25 bps on June 16: Poll

The Reserve Bank of India (RBI) is expected to raise its repo rate by a total of 75 basis points for the rest of 2011, including a 25 basis point increase on Thursday, unchanged from forecasts in a May 3 poll, a Reuters poll found on Tuesday.

The RBI is expected to raise its key lending rate, the repo rate, now at 7.25% to 7.50% on Thursday when it meets for its mid-quarter policy review and to 8% by December-end.

Of the 22 analysts, 13 said they expect the repo rate to be at 8% by the close of the year, while 9 respondents expect the rate at 7.75%.

Rate expectations have risen by a full percentage point since the start of 2011, when a poll found the median forecast for the year-end repo rate at 7%.

The central bank raised the repo rate by a higher-than-expected 50 basis points at its policy meeting last month and said it would focus on taming inflation even at the cost of some short-term growth.

"The RBI will probably front-load on its tightening and bring the repo rate up to 8% in three successive 25 basis point moves, including this week's policy meeting," Vishnu Varathan, Asia Economist at Capital Economics in Singapore.

Inflation accelerated faster than expected in May, with higher manufacturing prices offsetting slower growth in fuel and food costs.

The wholesale price index, India's main inflation gauge, rose an annual 9.06% in May, above the median forecast for an 8.70% rise in a Reuters poll and the April figure of 8.66%.

The RBI has raised repo rate nine times since March 2010 by 250 basis points.

However, a slowing April industrial output, sluggish credit growth and slower-than-expected GDP growth have led some economists to speculate the Reserve Bank may pause its rate tightening.

Two respondents in the poll expect the key lending rate to be maintained at 7.25% on June 16.

India's economy grew at its slowest annual pace in five quarters in January to March as rising interest rates crimped consumption and investment.

Gross domestic product in Asia's third-largest economy rose 7.8% from a year earlier, lower than 8.3% in the previous quarter and below the median 8.2% forecast in a Reuters poll.
The RBI has projected the economy to grow at around 8% in the fiscal year ending in March 2012.
source-http://www.moneycontrol.com/news/economy/rbiseenraisingreporateby25bpsonjune16poll_557494.html

steven
management trainee-fundamental analysis
DENIP consultants Pvt Ltd