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Credit Suisse expects Reserve Bank of India Governor, Raghuram Rajan, to look at a (final) 25 basis point hike in policy rate at the central bank's December 18 review meeting.
Rajan will feel the need to respond to the rise in both the Wholesale Price Index and Consumer Price Index inflation, Credit Suisse said in a research note released soon after India's Q2 GDP announcement.
WPI and CPI-based inflation for October stood at 7 per cent and 10.1 per cent respectively.
Credit Suisse has in this note stuck to its India GDP growth forecast of 5.4 per cent for 2013-14, stating that it was “happy to be above consensus”.
It is also content with its top end 6.6 per cent growth forecast for 2014-15, which is currently a full percentage point above the market average.
REASONS FOR OPTIMISM
Credit Suisse expects economic growth to strengthen from here despite prospects of renewed fiscal tightening.
There are three reasons for this optimism--rupee depreciation's lagged effect and positive impact of exports; strong pick up in agricultural output growth in the second half of current fiscal given the better monsoon and cabinet committee on investments clearing $50 billion of investment projects.
The CCI results is likely to be more a story for 2014-15 than 2013-14, according to the research report.
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