With the Reserve Bank revising upward its inflation estimate for FY 11 to eight per cent from the earlier 7 per cent, the rate hiking cycle in FY 12 is now likely to be more extended than initially anticipated and far more front-loaded, a leading economist said.
"We expect inflation to print in at 8.1 per cent in March and move close to nine per cent by August," HDFC Bank's Chief Economist, Abheek Barua, said in a statement here today.
In his reaction to the Reserve Bank hiking its Repo and Reverse Repo rates by 0.25 per cent each in its mid-quarter monetary policy review today, Barua said that with inflation in February at a high of 8.3 per cent instead of the sub-8 per cent as expected, the apex bank's move was expected.
"Indeed, with inflation for the month of February coming in as a rude shock to the market (the reading came in at 8.3 per cent against expectations of 7.8 per cent and on top of an upwardly revised estimate of 9.4 per cent for December) at the start of the week, this is the very least the central bank could have done to assuage concerns on price pressures," he said.
HDFC Bank said that the apex bank's move to raise key rates was expected as inflation in February was at a high of 8.3 per cent instead of the sub-8 per cent as expected.
"We expect inflation to print in at 8.1 per cent in March and move close to nine per cent by August," HDFC Bank's Chief Economist Abheek Barua said in a statement.
"Indeed, with inflation for the month of February coming in as a rude shock to the market (the reading came in at 8.3 per cent against expectations of 7.8 per cent and on top of an upwardly revised estimate of 9.4 per cent for December) at the start of the week, this is the very least the central bank could have done to assuage concerns on price pressures," he said.
On inflation, now the prime concern of the Reserve Bank, Barua said that expectations of a moderation in inflation in H1 FY 12 that the central bank had alluded to in its last policy statement in January "are conspicuous by their absence."
Another rate hike in both the repo and reverse repo by 0.25 per cent each could be expected in the bank's annual review scheduled for May, he said, adding this could be followed by rate hikes in the range of 0.50-0.75 per cent through FY 12.
"We see the RBI hiking its repo and reverse repo by another 25 bps in its annual review in May and this is likely to be followed by 50-75 bps of rate increases through the fiscal year," Barua said.
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