The rise in oil prices is likely to lead to inflationary trends in the country, forcing the Reserve Bank of India (RBI) to hike rates by 0.25 per cent in the August policy review, according to foreign brokerages.

However, it could opt for a status quo in rates at the forthcoming review in June. “We now expect the RBI to embark on an earlier than expected rate hike cycle and expect the first hike in August of 0.25 per cent versus our earlier expectation of hikes to come in the first quarter of 2019,” Australian brokerage Macquarie said, according to a PTI report.

External conditions

The brokerage attributed the call to a change in “evolving external stability conditions”, asserting that the underlying economic fundamentals are not weak. The note did not elaborate on the external conditions.

Quoting its proprietary indices, Japanese brokerage Nomura also said that the RBI may opt for a rate hike of 0.25 per cent each in August and October reviews after leaving the rates unchanged at the June 6 review.

“In our base case (55 per cent probability), we expect the RBI to leave the policy rate unchanged, but change its stance from 'neutral' to 'withdrawal of accommodation' on 6 June, followed by 0.25 per cent rate hike in each of August and October,” it said.

The brokerage said its policy signal index rose to 0.10 in May from 0.01 in April “implying a higher probability of tightening due to rising crude oil prices and higher core inflation”. It, however, said that at 0.1 per cent, the index is still in the no-change zone, but added that if the prices remain at the current levels, the threshold will be crossed.

Oil marketing companies hiked fuel prices for seven consecutive days till yesterday to record high, primarily on the jump in global crude prices. The Karnataka polls had also led to a deferment of the price hikes, according to reports. The reports by Macquarie and Nomura have come days after similar calls by others, like HSBC, which expects two hikes, in August and October, respectively.