The Reserve Bank of India is likely to raise policy rates by another 50 basis points between now and end of March 2011 due to high inflation, Credit Suisse said on Thursday.
?Although year-on-year Wholesale Price Index inflation is likely to head lower, we think RBI is cognisant WPI does not reflect actual inflationary expectations on the ground and that the latter are still elevated,? Devika Mehndiratta, fixed income research analyst at Credit Suisse, said in a report.
The report, however, noted rate hikes will taper off in 2011, with policy rates settling at lower than pre-crisis highs. ?Unless global growth outlook moderates by more than we expect, we think RBI will tighten (rates) by 50 bps in 2011-12 (April-March),? he said.
Growth forecast
Credit Suisse said it is raising its forecast estimate for 2010-11 GDP to 8.4% from 8.3% due to ?better-than-expected summer crop?. Credit Suisse?s growth estimate for 2011-12 was lowered from 8.3% to 8.0% on higher bank lending rates that will impact economic activity.
Inflation forecast
Credit Suisse lowered its March 2011 inflation forecast under new WPI series to 5.2% year-on-year from 5.7% earlier. ?Moderation in y-o-y WPI inflation readings is likely to be driven by favourable base effects bringing down food and fuel inflation components,? it said.
Fiscal deficit
Fiscal deficit is expected to be about 5.5% of GDP in 2011 as government is unlikely to benefit from a ?one-off revenue gain? in 2011-12 like it did from third-generation mobile spectrum auctions this fiscal year.