Interest rates in India could rise further in 2014 with the RBI?s repo rate likely to be hiked to 8.5% by the middle of 2014, says Goldman Sachs in its 2014 India economic outlook report.
The global brokerage expects the main policy rate to be hiked by another 75 bps from the current level of 7.75% due to persisting inflation. ?We are still a bit wary that there are going to be some inflationary pressures in the near term,? said Tushar Poddar, chief India economist, Goldman Sachs. Goldman?s call on inflation suggests that average CPI inflation will remain at 8.3% in FY15 and 7.5% in FY16. Wholesale price inflation is also projected to remain at above 6%.
?This, then, makes the central bank remain in tightening mode,? explained Poddar.
Goldman Sachs expects a moderate recovery in growth, which it expects will slip to 4.3% in current fiscal. A pick-up in investment and higher growth in exports could help growth revive to near 5.5% in FY15, said the brokerage.
Significant relief is also expected on the current account deficit (CAD), which is expected to slip below 3% from a high of 4.8 GDP in FY13.
The fall in CAD will also mean less pressure on the Indian currency. Goldman has penned down a 12-month forecast of 65 for the rupee against the dollar.