Standard Chartered Bank expects the Reserve Bank of India to increase the repo rate by 25 basis points each in the next two policy review meetings to 8 per cent by end-2013.
The RBI on Friday hiked the repo rate (interest rate at which it lends to banks) by 25 basis points to 7.5 per cent.
Standard Chartered Bank (SCB) also expects the marginal standing facility (MSF) rate to be reduced by another 50 basis points by end-2013.
Policy rates are likely to remain elevated for a considerable time if inflation based on consumer price index were to increase, SCB said in a report soon after the latest RBI policy announcements.
The bank has upped its WPI-inflation projection for end-March 2014 to 6 per cent from 5 per cent earlier.
The RBI’s strategy to narrow the spread between MSF and repo rate to 100 basis points (from 200 basis points currently) is likely to lower the overnight call money rate.
With the US Fed postponing the tapering of its quantitative easing programme at its September 18 meeting, SCB expects foreign investments in government securities (G-secs) to pick up.
“We also expect inflows of $10-15 billion to local bank deposits as a result of RBI’s recent relaxation of rules governing the non-resident Indian deposit scheme,” the SCB note said.