Major foreign banks HSBC, Citigroup and Standard Chartered expect further tightening measures by the Reserve Bank of India (RBI) to manage liquidity arising out of excessive capital inflows and inflationary threat.
Robert Prior-Wandesforde, senior Asian economist, HSBC, who was interacting with media on Thursday here along with Stephen King, group chief economist, HSBC and David Bloom, global head of foreign exchange strategy, HSBC, said the bank expects rupee to appreciate to 37.50 and inflation to hit 5% by the middle of next year
?As such, we think it is still too early to suggest that rates have peaked, and are looking for a further 50 bps CRR hike in the first quarter of next year as well as one or two more repo rate rises increases,?? he explained.
The Indian economic growth is slowing and may fall to 7% next year, and RBI may signal a rate cut after that. But the maximum impact of the rate rises are unlikely to be felt (let alone seen in the numbers) until well into next year,? he explained.
Rohini Malkani, economist, Citigroup India, said the latest CRR hike by 50 basis points a liquidity absorption move and not an interest rate signal. Going forward, if the surge in dollar inflows continues the RBI will continue to use the CRR in the coming months.
?While the RBI or government have already taken measures such as an increase in the MSS ceiling, as well raising the CRR, if the surge in dollar inflows continues besides raising the MSS and CRR, we could expect the government/RBI to monitor inflows coming in, including those into real estate/ private equity, as well as come out with measures to encourage outflows,?? she said.
Shuchita Mehta, senior economist, Standard Chartered Bank said, inflation risks have increased significantly, even though the headline number is the lowest in five years.
?Further monetary action cannot be ruled out. We remain committed to the view that RBI will need to tighten reverse repo rate by 25 bps in first quarter of 2008,? she predicted.