RBI to Go for Another 0.40% Hike in Rates

A foreign brokerage said on Friday that the Reserve Bank is expected to raise interest rates by 0.40 percent at its next monetary policy review next week.

According to the report by Bofa Securities, the central bank's rate-setting panel will either follow it up with a 0.35 percent rate hike in August, or split it into a 0.50 percent hike next week and a 0.25 percent hike in August, bringing the total rate hikes to 0.75 percent.

The Reserve Bank of India (RBI) raised interest rates by 0.40 percent on May 4, and Governor Shaktikanta Das has already described a rate hike at the next review as a "no brainer," given the pressure to keep inflation within the target band of less than 6%. According to the brokerage's report, due to a sharp increase in tomato prices, headline inflation for May is expected to be 7.1 percent.

The report stated that measures such as excise duty reductions on fuel products, duty-free imports of crude soyabean and sunflower oil, and lower ATF prices will help avoid an inflationary spiral.