Mint Street bets on at least one more hike

Thursday’s rate hike won’t be the last. With the price monster still at large, Mint Street may be planning the next one already.
That’s the verdict from economists from 10 organisations — including banks, brokerages and consultancy firms — polled by DNA.

The consensus view is for another 25 basis points (bps) hike this fiscal, though some are looking at further hikes if inflation does not come under control.

“We are expecting one more hike by the RBI in July as inflation is expected to be high for the next few months,” said A Prasanna, chief economist, ICICI Securities Primary Dealership.

Sachchidanand Shukla, chief economist at Enam Securities concurred. “We expect a hike of 25 basis points in July review of the policy. The core inflation needs to come down for at least two consecutive reviews.”

Economists expect inflation based on the wholesale price index, or WPI, to remain high at least till August. WPI inflation came in at 9.06% for May.

“Pipeline pressures from input pass through, a likely diesel price hike and an increase in government-controlled price of key food items are likely to take inflation to double-digits by June-August, 2011 and push average inflation for first half of FY12,” Abheek Barua, chief economist, HDFC Bank wrote in a note.

According to Barua, this is likely to drive the RBI to hike its repo rate by at least another 50 bps over the remainder of FY12 before it reassesses the impact of past tightening measures and global headwinds to domestic growth.

Even the RBI said in its mid-quarter monetary policy review statement that based on the current and evolving growth and inflation scenario, it will need to “persist with its anti-inflationary stance of monetary policy.”

In view of this, a few economists see rates being raised by more than 25 bps during the remainder of this fiscal.

Leif Lybecker Eskesen, chief economist for India & Asean, and Prithviraj Srinivas, economics associate, HSBC see “an additional 75 bps over the next nine months, with the next hike to be delivered during the third quarter.”

“The hawkish statement emphasised the upside risks to inflation from global commodity prices and demand-led price pressures, but also downside risks to global growth, suggesting that they will continue to tighten but resume the gradualist approach for now.”