RATE HIKE SEEN IN AUGUST
Shift in expectations follows jump in annual consumer price inflation to 4.58pc in April
INDIA’S central bank will hike rates in August on concerns that already above-target inflation will climb further, according to economists in a Reuters poll, in contrast to a survey just a month ago which saw an increase only in the second half of next year.
That dramatic shift in expectations was driven by India’s annual consumer price inflation, which accelerated in April to 4.58 per cent, above the Reserve Bank of India’s (RBI) target of four per cent for the sixth month in a row, after easing in each of the three previous months.
The May 24-30 poll of nearly 60 economists showed the RBI would hike its repo rate by 25 basis points to 6.25 per cent in August. While the median suggests the central bank will keep rates on hold when it meets on June 6, about 40 per cent of the economists polled expected a hike next week.
“As global market turmoil takes its toll, we are changing our RBI policy rate call from an extended pause to a 25 basis point hike at the August meeting,” said Kunal Kundu, India economist at Societe Generale.
“The RBI may announce a change in policy stance during the June meeting and follow that up with a hike in August.”
Kundu said while RBI’s inflation expectation had been “erring on the side of hawkishness, with actual inflation mostly relatively underwhelming, the latest inflation data, though not too high, raise the prospect of a rate hike”.
The inflation rate rose due to higher domestic food costs and crude oil prices, which hit US$80.50 (RM320.39) on May 17, its highest since November 2014.
With India importing 80 per cent of its fuel needs and government spending increasing before national elections next year, which will likely add to price pressures, expectations have firmed for the RBI to move away from a neutral stance next week.