Expect RBI to hike rates by 100 basis points in next two meetings: Morgan Stanley's Chetan Ahya

Inflation will remain above the Reserve Bank of India's tolerance band in the near future, and an aggressive rate hike by the apex bank won't hinder India's growth pace, says Chetan Ahya, Chief Asia Economist of Morgan Stanley.

In an interview with CNBC-TV18, Chetan Ahya shared his views on April inflation numbers and the balance of payments deficit.

Edited excerpts

How much would you worry about inflation numbers? Are you expecting a series of rate hikes from the Reserve Bank of India?

We were surprised by the upside in the inflation number. Up to 56 percent of the CPI basket is above 6 percent. It is now a serious issue for the RBI. Therefore we are expecting the RBI to be aggressive, hiking by 50 basis points in the next meeting, and the meeting after, so 100 basis points over the next two meetings.

When do you see inflation declining?

We see inflation still remaining in the range of 7.50 percent until the September quarter. By the year-end, we see inflation reaching around 6.25 percent.

The upside risks are still existing. We still don't have a solution to global crude oil prices as well as coal prices.

Also Read | Is RBI tightening policy at a time when industrial growth is still weak?

Rising demand has resulted in further pressure on inflation as seen in the US.

If the repo rate does go to 6.50 percent, are you seeing any impact on growth?

That's not really restrictive in the Indian context.

What are your expectations for the current account this year on the balance of payments deficit? What is your outlook on the rupee?

Two factors need to be considered; one is the overall direction of the dollar. Our global rates strategists are forecasting that dollar will appreciate in the near term.

The other factor is the domestic trade deficit and current account balance. Even the capital flow direction will be important.

In the next two-three months, we see downward pressure on the rupee because, a) dollar will probably be strong, and b) India's trade deficit and capital account will be volatile. There will be marginal depreciation in the near term, and stabilisation after three-four months' time.