New Delhi: The Reserve Bank is likely to hike benchmark lending rates by 25 basis points in its bi-monthly policy next month to bring down inflation within the central bank's comfort zone, said DBS Group Research on Monday. To contain the rising prices, the RBI has hiked interest rates by 250 basis points since May last year. The latest rate hike of 25 basis points in February took the benchmark policy rate to 6.50 percent.
In an online session on 'Growth resilience and sticky inflation', DBS Group Research Executive Director and Senior Economist Radhika Rao said that the RBI may hike interest rates by 25 basis points in April and maintain a hawkish bias as retail inflation is still high. Retail inflation in January spiked to 6.52 percent as against 5.72 percent in December last year.
Rao, however, said that inflation caused by supply-side constraints cannot be dealt with by monetary policy alone and is not enough to tackle inflation.
"Weather conditions are important for farm output. The local weather agency has said in the next three months you could see high temperatures. The upcoming monsoon in June-July would be a crucial period. Weather would be important for inflation and farm output as the sector employs about 45 percent of the population," Rao said.
"We do think supply shocks are playing out in the food segment. Core inflation is quite sticky. We do think that the upcoming meeting in April is going to be another 25-basis points hike, but thereafter, we think that the monetary policy committee is going to be divided on the path ahead because supply shock by nature cannot be dealt with by monetary policy alone. We have to see support from the government as well in terms of administrative measures of some fiscal support," Rao added.
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