Reserve Bank may hike key policy rates in Q4 2018: Report

08 April 2018, 11:13 AM
Reserve Bank may hike key policy rates in Q4 2018: Report
Reserve Bank may hike key policy rates in Q4 2018: Report

The Reserve Bank of India (RBI) is likely to hike key policy rates by the fourth quarter of this year, as the country’s economic recovery is likely to be on a “surer footing” by then, according to a Morgan Stanley report.

“The key argument for the case for a rate hike by 4Q18 is two-fold, in that we don’t expect a significant overshoot of inflation relative to the RBI’s target and that the economic recovery will be on a surer footing by then,” Morgan Stanley said in a research note.

The report stated that the global brokerage excepts private capex is expected to show signs of recovery by the end of this year.

“Against this backdrop of greater certainty and a more sustained recovery in growth, the central bank can then move to commence a shallow rate hike cycle,” the report stated.

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Earlier on April 5, the Reserve Bank in its first bi-monthly monetary policy review for 2018-19 kept repo rate unchanged at 6 per cent. The Monetary Policy Committee maintained status quo for the fourth consecutive time since August last year.

According to a Deutsche Bank Research, given the current and near-term growth-inflation mix, the RBI is likely to remain on an extended pause provided there is normal monsoon and global oil prices remain below USD 70/barrel.

“We expect a cumulative 75 bps rate hike in this cycle, but see the hikes starting from early next year, rather than this year under our base case scenario,” the Deutsche Bank Research report said.

(With inputs from agencies)

First Published: Sunday, April 08, 2018 11:06 AM
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