RBI may raise rates in Jan - Stanchart

The Reserve Bank of India (RBI) may raise its key policy rates by 25 basis points in January, earlier than previously thought, to tame accelerating inflation, Standard Chartered Bank said on Wednesday.

The bank sees India's wholesale price index-based inflation near 7 percent before the Reserve Bank of India (RBI) meets to review policy on Jan. 29. It also raised its inflation forecast to 8.5 percent by end-March 2010 from 7 percent.

"There will be further pressure on the RBI to act because there have been few innovative steps on the fiscal side to tackle food price inflation," analyst Samiran Chakraborty wrote in a note.

"Monetary action would, to some extent, reduce the clamour over rising prices which is growing uncomfortable for the government."

Standard Chartered had earlier said the RBI may tighten liquidity by raising the amount banks have to keep in deposit with the central bank by 50 basis points before the Jan. 29 policy review but had not seen a hike in policy rates.

India's wholesale prices rose a faster-than-expected 4.78 percent in November, with the food price index soaring 16.7 percent. The headline number is higher than October's 1.34 percent rise and faster than a Reuters poll of 4.14 percent.

Finance Minister Pranab Mukherjee said on Tuesday India would take measures to tame rising prices and enable the economy to recover faster, but did did not elaborate on the steps planned.

Standard Chartered said it expected an exit from monetary stimulus to be gradual because growth indicators were undergoing a phase of tentative recovery and any significant tightening may derail this recovery.

The RBI's repo rate, at which it injects cash into the system, currently stands at 4.75 percent while the reverse repo rate, at which it absorbs cash, is 3.25 percent. The cash reserve ratio (CRR) is at 5 percent.

sirfpaisa.com