RBI To Raise Rates Once More On April 6 But Leave Door Open For More: Reuters Poll

The Reserve Bank of India will raise its main interest rate by 25 basis points on April 6 and then pause for the rest of the year, according to a Reuters poll of economists who said the central bank would still maintain its tightening stance.

Inflation in Asia's third-largest economy remains above the central bank's upper tolerance limit of 6.00%, reaching 6.52% in January and easing only slightly to 6.44% in February, a key reason for the RBI to hike again, stated the Reuters report.

A strong majority of economists, 49 of 62, said the RBI would lift its repo rate by 25 basis points to a seven-year high of 6.75% at the conclusion of its April 3-6 meeting. A majority of economists in the March 23-28 Reuters poll also said the RBI would then keep the rate steady for the rest of the year.

If realised, that would mark a cumulative 275 basis point increase from the Monetary Policy Committee since last May, a relatively modest rate cycle compared with some other central banks like the U.S. Federal Reserve, which started earlier, as per the Reuters report.

"It's not just headline - even core inflation, which the MPC did emphasize substantially in the last two policy reviews, continues to be a point of concern for them," said Vivek Kumar, an economist at QuantEco.

"The Fed has done what it roughly telegraphed, and given that backdrop ... we see no reason why the RBI should stay back, especially when inflation is running ahead of the upper end of the comfort band."

A majority of respondents, 20 of 36, said the central bank would maintain its withdrawal of accommodation stance at the April meeting. The remaining 16 said it would shift to neutral, added the Reuters report.