Macroeconomic Forecast India

Growing inflationary pressures will force the Reserve Bank of India (RBI) to tighten its repo rate in early 2010 - possibly as early as January. Consumer price inflation (for industrial workers) surged to an eleven year high of 13.5% y-o-y in November. Meanwhile, the more widely-recognised inflation metric, the wholesale price index, jumped from 1.3% y-o-y in October to 4.8% in November, driven primarily by food prices (which were up 11.8% y-o-y during the month). On balance, we are forecasting a total of 75bps of hikes by end-March, which would take the repo rate to 5.50%.

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