StanChart expects 25-50 bps rate hike in April

Excerpts from Bazaar on CNBC-TV18 Watch the full show » RELATED NEWS Surprise rate hike to have knee-jerk reaction in mkt Nifty BSE | NSE 10/02/12 Are Mutual Funds betting on Nifty?

The expected has happened only the timing was unexpected. The Reserve Bank of India (RBI) has raised the reverse repo and repo rates by a 25 basic points.

RBI's 2-page press note on Friday evening announcing the rate hike has the word inflation writ large in every line. The central bank has pointed out that food prices, despite some moderation in the last few weeks remain at an elevated 16%; the consumer price indices have been rising in recent months.

The second reason for the hike is the robust recovery numbers. Industrial output grew at 17.6% in December and at 16.7% in January. In addition a 39% rise in capital goods in December and a 56% rise in January show that investment activity has revived.

So will there be more to come?

Anantha Narayan, Standard Chartered Bank expects 25-50 bps hike in April. "The reverse repo might head to 4.5-5% in the near-term."

Narayan sees the yields spike upto 8.5% levels. "The markets expects liquidity will be kept ample."

Next page: Transcript of Anantha Narayan's exclusive interview on CNBC-TV18.