No interest rate cuts coming anytime soon, warn analysts after RBI hikes repo rate

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RBI raised the key lending rate by 25 basis points to 8 per cent. Reuters RBI raised the key lending rate by 25 basis points to 8 per cent. Reuters
SummaryFar from interest rate cuts, analysts say brace for many more RBI hikes.

rate, with a low likelihood that policy will turn accomodative in near term.

"However, the RBI is likely to continue to address frictional liquidity concerns through a combination of tools to ensure adequate flows to productive sectors," Icra said.

British bank Barclays, in a note, said while the RBI's action today is in some way part fallout from its aggressive December guidance, it seems the central bank has softened its guidance in this round and actually revealed its inclination to stay on hold in the coming months.

SBI, in a research report, said the primary reason for the rate hike was to ward of the contagion in the financial market.

"With this policy, the RBI has clearly shifted its focus towards achieving a stated inflation goal over the next couple of years," Crisil said in a research note.

The rating agency, believes, the future course of monetary policy will now be determined by the forecasts of CPI inflation, the new nominal anchor.

SBI's report sees CPI inflation to be closer to 8.5 per cent by March 2014, lower than 9 per cent RBI forecast.

"As per the future trajectory of the CPI, it will be purely dictated by the food prices with the onset of summer," it added.

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