Reserve Bank of India likely to hike key interest rate by 25 bps - Scotiabank

The Reserve Bank of India is set to meet tomorrow for the monetary policy decision. According to a Scotiabank research report, the RBI is expected to hike by 25 basis points to 6.5 percent, with the aim of striking a balance between strengthening economic growth and attaining the medium-target for inflation of 4 percent, plus or minus 2 percent.

Reserve Bank of India chief Urjit Patel stated in the previous meeting’s minutes that India’s inflation risks have increased since the April policy. The headline consumer price index rose to 5 percent year-on-year in June from May’s 4.87 percent.

While the headline inflation is likely to ease moderately starting from July when the effect of GST is going to diminish, the country’s core inflation that stood at 6.35 percent in June is likely to stay elevated down the road, stated Scotiabank.

Oil prices are likely to stay resilient on rising demand in coming months. The central bank is expected to continue sparking concerns regarding India’s inflation outlook and imposing pressure on the country’s ongoing trade deficit and current account deficit. The latest CFTC data indicated that leveraged funds retained considerable net long crude oil futures positions as of 24 July.

“We remain bearish on the INR and expect USD/INR to breach the 69 resistance before heading for 70”, added Scotiabank.