RBI likely to follow Fed, keep rates higher for a while, says economist

By Anup Roy

India’s central bank will likely go for one more quarter point rate increase next week, in line with the US Federal Reserve, but domestic compulsions may result in a pause after that, said Shubhada Rao, founder of economic research firm QuantEco Research.

 

The Reserve Bank of India, like most emerging market central banks, will closely follow what its American counterpart has been doing, but “need not follow every step of what Fed does,” said Rao in an interview with Bloomberg Television’s Rishaad Salamat and Haslinda Amin. “Domestic compulsions will somewhere also begin to guide the central bank’s policy direction.”

The RBI’s six-member rate-setting panel will meet April 3, 5 and 6 to likely raise the benchmark rate for a seventh successive time after inflation jumped above the central bank’s upper target band of 6% in the first two months of the year. Persistently high core inflation, over 6% for 17 straight months, is holding back policymakers from easing on rates amid early signs of a demand slowdown.