Reserve Bank of India announces rate hikes. The RBI hiked the reverse repo rate by 50bps to 6.25% and the repo rate by 50 basis points to 7.25%.
The savings bank deposit rate was also increased by 50 bps to 4%. The RBI left the cash reserve ratio (CRR) unchanged at 6%.
Inflation remains a challenge: Headline inflation (WPI) has remained above the RBI’s comfort zone of 5-5.5% for the past 16 months. We expect WPI inflation to average 8.5% in 2011. We believe that prices of global commodities, including crude oil, will be key to the inflation outlook.
Growth outlook: Continue to see downside risks. We expect GDP growth to decelerate to 7.7% in F2012 (end-March) from 8.6% in F2011e. We expect government spending and consumption growth to slow in 2011. Considering that the cost of capital might stay higher for
longer as well as well as continued high global commodity prices, we see downside risks to our growth outlook – to the extent of 0.25-0.5%pts.
Safe Harbor Statement:
Some forward looking statements on projections, estimates, expectations & outlook are included to enable a better comprehension of the Company prospects. Actual results may, however, differ materially from those stated on account of factors such as changes in government regulations, tax regimes, economic developments within India and the countries within which the Company conducts its business, exchange rate and interest rate movements, impact of competing products and their pricing, product demand and supply constraints.
Nothing in this article is, or should be construed as, investment advice.
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