Economists expect RBI to up rates by 25 more basis points

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New Delhi, July 6 (PTI) Economists expect the Reserve Bank to hike its key short-term lending and borrowing rates on July 27 to tame rising inflation, which is already in double-digits. The Opposition has mounted pressure on the government to rollback fuel prices and curb inflation, but economists said the RBI''s expected move will not be guided by the NDA and Left-sponsored Bharat Bandh yesterday. They, in fact, favoured the government''s move to hike petroleum prices. "The idea is to moderate economic growth by raising interest rates and thereby control inflationary expectations. I don''t think that due to the protests by the Opposition, RBI will be forced to hike its rates faster," Crisil Chief Economist D K Joshi said. Axis Bank Chief Economist Saugata Bhattacharya also said, "Our sense is that there will be 25 basis points hike in both repo and reverse repo rates on July 27. They will not do anything to CRR. By that time, liquidity will be less restrictive. it would have eased significantly. So, they will not touch the Cash Reserve Ratio (CRR)." However, Bhattacharya said the government has taken a courageous step by hiking fuel prices. Economic think-tank ICRIER Director Rajiv Kumar said he expects the RBI to increase the repo (short-term lending) and reverse repo (borrowing) rates by another 25 basis points each in its July review. "They will not be changing the CRR. The hike in rates will help to bring down inflation. Besides, inflation is expected to go down on base rate effect and good monsoon. We expect inflation to be 6.5 per cent by March," he said. The CRR is the proportion of deposits that banks are required to keep with the RBI in cash. Since liquidity in the system is tight, due to a more than Rs 1 lakh crore outgo towards payment for spectrum for high speed mobile and broadband services, besides advance tax payment, the Rserve Bank may not hike the CRR. The Opposition NDA and the Left parties had yesterday organised a Bharat Bandh to press for a rollback of the hike in fuel prices and tame inflation. The government had last month deregulated petrol prices and increased the rates for other fuels. The central bank, in an unscheduled move last week, hiked the short-term lending and borrowing rates (repo and reverse repo) by 25 basis points each to 5.5 per cent and 4 per cent, respectively, to cool down inflation. Even as food inflation sharply declined by almost four percentage points, it still stood at 12.92 per cent during the third week of June. Overall inflation is already in double-digits, at 10.16 per cent in May.

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