Inflation at 11.89%; Experts expect RBI to raise rates

Mohan Shenoi, Treasury-Head, Kotak Mahindra Bank, said the chances of RBI pursuing a wait-and-watch policy has increased substantially as WPI has reached a plateau after a rapid rise and international crude oil prices also seems to be coming down. “RBI might just focus on managing liquidity and give the policy rate hike a pass this time. However, the RBI might make some announcements on CRR in order to curb liquidity and to show that inflation is still a concern.”

RVS Sridhar, Senior Vice President‑Treasury, Axis Bank, expects a repo rate hike by RBI. “I don’t see a hike in CRR. There will be some volatility in the next few weeks or months depending on the trajectory of inflation and the expectations on RBI action. Crude oil coming down and should be a great help in these conditions.” He sees interest rates for 10-year bond yields at around 9.25%.

Shubhada Rao, Chief Economist, Yes Bank, said these last two weeks’ numbers definitely point to some stability in the week-over-week increase in prices. “It is going to need significant effort to bring down the week-over-week index number much lower. If the current trend of marginal week-over-week increase continues for a larger part of the year, we could see inflation peaking at around 14-14.5%. Beyond that we could see it lowering. On the flipside, the patchy performance of monsoon is something that we need to watch out for.”

She sees inflation arising in primary articles. “There should be some relief on manufactured product prices. I expect double-digit inflation for a larger part of the current fiscal because the index has risen much higher in the last six week.”

She does not see a rate or CRR action by RBI. She sees rate action between two policy periods, i.e. between July and October.