Inflation to peak at around 15%: HSBC India

Vineet Malik, Director & Head-Interest Rates, HSBC India feel that inflation will be the overwhelming objective of the RBI. He expects the RBI to go in for a 25 bps hike for the moment. "The inflation peak as per our official forecast is around 15%," he said.

Excerpts from CNBC-TV18’s exclusive interview with Vineet Malik:

Q: What would you give in terms of a credit policy expectation and does this minor change in crude prices alter your view of what you are expecting from the RBI, indeed what are you expecting?

A: The market is still expecting something like a 25-50 basis point hike in the credit policy and apart from just crude prices falling off, the thing the market is now beginning to look at is that the RBI also has a growth objective and more importantly it also has an objective to ensure financial system stability.

This, so far we haven’t seen as a major concern in the Indian context because so far evidence of a real slowdown creeping in as a result of recent RBI tightening is purely anecdotal. We do not really have concrete data supporting it.

For now, one has to assume that inflation will be the overwhelming objective of the RBI. We would expect that the RBI goes in for a 25 bps hike for the moment.

Q: For the rest of the year, what are the expectations in terms of rate action from the RBI?

A: Given the current set of data available, the rate action from the RBI can only be either to pause or to hike further because the paramount objective right now is to bring down inflation. Once the market starts feeling that the RBI has gone ahead of the inflation curve, that automatically will bring up investor confidence in other markets including equity markets as well.

Q: What is the number you are working with in terms of an inflation peak at this point? What is the number you have in mind in terms of a 10-year range and a 10-year peak?

A: The inflation peak as per our official forecast is around 15%. In terms of the 10-year yield, I think for now one would tend to look at something like a 10%. The only factor to watch out for is if you start seeing substantially sharp or violent moves in international systems as a whole, and if the macro environment continues to deteriorate, then the RBI might actually start giving that increased weightage. The hikes that people are currently looking for might not really materialise. But so far, it is purely anecdotal and one has to go with the view that RBIs paramount focus is on inflation. Therefore we are targeting something like 10% for the medium-term.