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RBI likely to raise interest rates in August; to go for more hikes this fiscal: DBS

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The Reserve Bank of India is expected to go for further rate hikes this fiscal, with the next increase in key policy rates likely in the August policy review meet, says a DBS research note.

According to the global financial services major, upside risks to inflation and a need to maintain financial markets' stability will keep monetary policy on a tightening bias.

"We expect 50 bps more hikes in 2018-19, with the next likely in August," Radhika Rao, an economist with DBS said in a research note.

The report said inflationary risks are building up and the key risks for the outlook include minimum support price increases, higher oil/fuel prices, weak rupee and fiscal conditions.

"Upside risks owing to the factors highlighted above, and a need to maintain financial stability will keep monetary policy on a tightening bias. We expect 50 bps more hikes in FY19, with the next likely in August," the report said.

According to government data, retail inflation rose to 5 per cent in June, a five-month high, despite easing food prices.

"Even as June likely marked the peak for inflation, with readings expected to moderate thereafter, the smaller extent of correction and firmer core pressures will be of concern for the central bank," the report said.

The government has mandated the Reserve Bank to keep inflation at 4 per cent, with a margin of 2 per cent on either side.

The Monetary Policy Committee (MPC) will begin its three-day meeting on July 30 and announce its decision on the third bi-monthly policy of the current fiscal on August 1.

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