‘RBI may go for rate hike by Q4 2018’

The Reserve Bank of India is expected to go for a hike in key policy rates by the fourth quarter of this year, as the country’s economic recovery is likely to be be on a “surer footing” by then, says a Morgan Stanley report.

The global financial services major expects the start of a shallow rate hike cycle by the fourth quarter of 2018. “The key argument for the case for a rate hike by 4Q18 is two-fold, in that we don’t expect a significant overshoot of inflation relative to the RBI’s target and that the economic recovery will be on a surer footing by then,” it said in a research note.

The brokerage expects private capital expenditure to show signs of recovery by the end of this year. “Against this backdrop of greater certainty and a more sustained recovery in growth, the central bank can then move to commence a shallow rate hike cycle,” it said. In its first bi-monthly monetary policy for 2018-19, the RBI left the repo rate unchanged at 6%.