RBI to go for another 0.25% rate hike in August: BNP Paribas

Brokerage BNP Paribas today said the Reserve Bank of India (RBI) will go for another 0.25 per cent hike in key policy rates at its August monetary policy review, a day after an official data showed retail inflation rising to a five-month high of 5 per cent in June.

"Consumer price inflation points out to a hike in August," the French Brokerage said in a note, adding it expects the RBI to hike the repo rate by 0.25 per cent to 6.5 per cent.

It said the price is higher than the RBI's medium term target of 4 per cent and the risks to inflation going forward are tilted on the "upside".

The upside risks to the price rise come primarily from the hike in minimum support prices (MSP) for food grains procurement and also the hike in wages, it added.

"Even though the hike in MSP came in lower than what the brokerage initially expected, it will fan the inflation print," the brokerage said, estimating that the headline inflation will come at 4.5 per cent for March 2019.

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Apart from MSP, it said salary hikes for government employees, especially in the housing component, will lead to rise in the critical inflation number.

The RBI's rate setting panel had hiked the repo rate by 0.25 per cent at the June review. The central bank, however, had sticked to the neutral stance of the policy and affirmed that its future actions will be data determinant.

The six-member monetary policy committee is slated to begin its three-day meet on rate review from July 30 and announce its resolution on August 1.