RBI WILL HAVE TO RAISE RATES BY 1% THIS YEAR: GOLDMAN

The Reserve Bank of India will have to raise interest rates by 1 percentage point this year to fight inflation and the currency would depreciate against the US dollar as the country imports more than it exports, forecasts Goldman Sachs.

Recognition of some of the deteriorating macro-economic factors would help the nation sustain its strong growth, which at this point calls for tightening of the monetary policy.

Indian stocks have tumbled and yields on government securities have risen in the past few weeks as inflation , induced by soaring food prices, is making investors believe that the central bank will be forced to raise policy rates. There could be some fiscal discipline too. RBI last year raised the rate at which it lends to banks six times to 6.25%.

Food prices are rising at more than 16.8% and inflation as measured by the wholesale price index may be well above the central bank’s target of 5.5% by the end of fiscal in March.

The most profitable investment bank has also reversed its opinion on the Indian currency as global commodity price increase will put pressure on the balance of payments. Its 12-month forecast for the Indian rupee is at . 47 to a dollar, down from . 44 forecast on January 7. The rupee today ended at 45.24 to the dollar.

SOURCE: http://economictimes.indiatimes.com/news/news-by-industry/banking/finance/banking/rbi-will-have-to-raise-rates-by-1-this-year-goldman/articleshow/7281257.cms