RBI To Hike Key Rates by 25 Basis Points Next Month

Goldman Sachs said today it expects the RBI to raise rates by 25 basis points at its policy review next month to control high inflation. 

"We expect the RBI to increase rates by 25 points in the monetary policy meeting on 17 March and by 100 basis points accumulated during the calendar year 2011," Goldman said in a research note.

Inflation has declined slightly from 8.23 percent in January and 8.43 percent the previous month, prices of certain products like wheat, pulses and sugar eased, but the essentials, like onions and other vegetables will be expensive . However, it is still above the comfort zone.

The RBI is scheduled to come out with its monetary policy in mid-quarter on March 17. The central bank has raised rates seven times from March 2010 to combat inflation.

At the third quarterly review last month, the RBI has revised its estimate of inflation expectations to 7 percent in March-end from 5.5 percent earlier. RBI has also screwed short-term lending (repo) and short-term lending (repo) rate by 25 basis points each.

Yesterday, the Prime Minister's Economic Advisory Council (PMEAC) also stated that the Reserve Bank may take further monetary tightening measures to control inflation. RBI will take a view looking at inflation. He is still at an uncomfortably high. Some measures, further action by the RBI (to tighten monetary policy) may be necessary, "said Chairman C. Rangarajan PMEAC.

Goldman also said it has brought inflation is expected next fiscal at 6.7 per cent to 6 per cent earlier, as the recent upside surprises in the prices of agricultural inputs and expectations of producer prices and higher international prices of raw materials.