25 bps hike in key rates not enough to deal with inflation: Chetan Ahya

Chetan Ahya, MD, Morgan Stanley, Research

A 25 basis point increase in the repo rate is pretty much the consensus. Are you expecting the same and will it be enough to deal with inflation, which is running stubbornly higher than 10%?

Answer to the first question is 'Yes', answer to the second question is 'No'. We are expecting RBI to do a 25 basis point hike in repo and reverse repo tomorrow but we do not think this is going to be enough. If you ask me what one should expect or what one should do in the next six months, I would say policy rates need to go up by 100 basis points but from the way the tone and the language is from the policymakers, it appears that it could be probably only 50 basis points actual hike. We would not have addressed the issue of inflation, current account deficit and the low deposit growth upfront if we do not see this policy rate hikes going up quickly.