Bank of America (NYSE:BAC) economist Indranil Sengupta stated the Reserve Bank of India will increase its rates at its next policy meeting in April by 25 basis points, adding on to the surprise increase in rates a few days ago, which caught much of the market off guard.
There were some mixed reactions to the assertion by Sengupta, but a growing number of economists in the region believe the increase will come as well.
According the the economists, the increase should be 25 basis points concerning repo and reverse repo rates. A reverse repo rate is one where the banks earn money by letting the money they place in the Reserve Bank of India, while repo rates are in reference to capital borrowed by the banks from the RBI.
Some economists estimate the rates could be increased by 100 basis points or more before the end of 2010, as the RBI attempts to battle the growing threat of inflation. China is dealing with a similar situation as far as how deeply to respond to the increased threat of inflation.
Nomura economist Sonal Verma said this, “We haven’t yet reached a stage of monetary tightening because interest rates are still far below normal. RBI will have to continue the process of normalisation of policy rates, since the economy is growing as per expectations and inflation is on the up-tick as well.”
Factors besides inflation to determine how much action will be taken by the RBI includes if consumer spending is rising, growth of credit and prices of commodities.
Last Friday the RBI surprised the global markets by the increase in rates, as they had seem to signal in January there wouldn’t be any more changes for a while.
