Interest rates likely to stay on hold in August: HSBC

Tags: News
The RBI is likely to pause again in its policy review meet next month, an HSBC report has said, adding that there is a possibility of a rate hike by the central bank in the last quarter of this year.

According to the global financial services major, since the last RBI policy meet, data suggest accelerating growth and surprisingly mild inflation, both at the core and headline level.

However, sub-normal rains, still pose upside risks to food prices, it added.

In the June 3 policy review, RBI left key rates unchanged and unlocked about Rs 40,000 crore of funds by reducing the amount of deposits banks are required to park in government securities.

This was the second time in a row that interest rates were left unchanged amid demands for moderation to spur growth.

RBI's next credit policy review scheduled on August 5.

"The RBI is likely to stay on hold in August, and we push back our rate hike forecast to 4Q 2014 – the latter is a close call and predicated on an expected rise in food costs due to poor rains," the HSBC research note said.

Meanwhile, global economy has gathered speed, with the US and the UK leading the pack and in India, the growth outlook has improved noticeably, led by an improvement in domestic and external demand.

HSBC further said: "Weak food inflation in June encourages the central bank to give more time for the government's supply-side measures to work. At the same time, headline inflation is too close to the year-end target to make the RBI comfortable about doing away with rate hikes altogether."

"We think the RBI is likely to pause again in August to get a better sense of the inflation trajectory," HSBC added.

Retail inflation in June touched its lowest mark at 7.31 per cent since January 2012 and the wholesale price-based index slid to four-month low of 5.43 per cent mainly because of easing vegetables prices.

EDITORIAL OF THE DAY

  • Protocols need to be quickly put in place for the success of Digital India

    The government has kicked off Digital India initiative in style. Companies too have queued up in large numbers with bagfuls of money.

FC NEWSLETTER

Stay informed on our latest news!

INTERVIEWS

Sarthak Raychaudhuri

vice-president, HR, Asia South Whirlpool of India

GV Nageswara Rao

MD & CEO, IDBI Federal Life

Timothy Moe

Goldman Sachs

TODAY'S COLUMNS

Simon J Evenett

Will Germany be able to deliver?

The BRICS aren’t the only countries whose stature has grown ...

Rajgopal Nidamboor

Up the ante of your conscious existence

It sounds cryptic, but is not as complex as it ...

Gautam Gupta

The ‘fake’ issue needs to be taken seriously

E-commerce players are witnessing unbelievable growth globally. Competition is increasing ...

INTERVIEWS

William D. Green

Chairman & CEO, Accenture