The Reserve Bank of India will raise interest rates by a smaller 35 basis points to 6.25% in December, according to economists polled by Reuters who expect another modest move up early next year to curb lingering inflation pressures.
A strong two-thirds majority said it was still too soon for the central bank to take its eye off inflation, which slowed to 6.77% in October having stayed above the upper end of the RBI's 2-6% tolerance band all year.
Eleven said it would continue hiking by 50 basis points, while another eight respondents said 25 bps. With inflation expected to remain above the 4.00% midpoint of the RBI's target for the next two years, rates are set to go a bit higher still, with most economists seeing an upside risk to their forecasts.
Despite poll medians showing the repo rate topping out at 6.50% by end-March, there was no consensus among economists over the RBI's final rate move in this cycle. Radhika Rao, senior economist at DBS Bank, said a sharp run-up in commodity prices, supply-side shocks, resilience in domestic demand engines and a prolonged global tightening cycle that would put pressure on the rupee were risks "that might convince the RBI to consider extending its rate hike cycle."
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