Is a rate hike on the cards post the +ve Q2 GDP nos?

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India's Q2 GDP growth has comes in way above estimates at 7.9%. Manufacturing and services sector jumped more than 9%. So, is the time ripe for a rate hike?

Atsi Sheth of Macro-Sutra sees interest rates trending higher. "They are likely to happen by early next year." She feels a rate hike would not kill the recovery process as long as they are not too severe.

Robert Prior-Wandesforde, Senior Asian Economist, HSBC Holdings Plc, says the current number significantly increases the chances of a policy rate move. "We see an increase in the reverse repo rate before the end of this calendar year or before the end of next month. I am taking January as the first increase in CRR and March for the first increase in policy rate."

Rajeev Malik of Macquarie Capital Securities says he would be surprised if policy makers are aggressive.

However, Montek Singh Ahluwalia, Deputy Chairman of the Planning Commission, does not see a need to change the fiscal and monetary policies now. "Good GDP numbers suggest we are back to the satisfactory growth path. We will review the situation in February and take a call on when to exit."

Srinivasan Varadarajan, Executive Director, Axis Bank, too feels it would be a bit premature to jump to the conclusion that the central bank would raise policy rates in January. He says RBI needs to arrest the liquidity side first before addressing policy rates. "RBI should try and work the liquidity angle to make sure that the liquidity in the system is a lot lower than what it is right now so as to manage inflationary expectations."

Inflation to be the decider:

Ravi Sud, CFO, Hero Honda, has a different take. He feels the Reserve Bank may look at raising interest rates in case inflationary concerns heighten. "Inflation will breach the central bank's comfort level by January-February 2010." Ahluwalia too feels a lot will depend on how inflation is tamed by February. "I don't believe that as of now there are serious worries on inflation front except food prices. Food prices are a matter of concern but I don't think conventional monetary policy will take care of that problem."