Inflation is likely to peak at 8.7 per cent by end-March and the Reserve Bank of India (RBI) is likely to begin tightening its monetary policy from its January policy review itself, a report by Bank of America Merrill Lynch (BofAML) has said.
The report also pegged the country's GDP growth at 8 per cent, assuming a normal monsoon.
"The first-half this year will see inflation going up to 8.7 per cent level. High inflation at a time of easy liquidity could lead the RBI to hike cash reserve ratio (CRR) by January itself against the backdrop of rising inflation and receding growth risks," BofAML Managing Director Jyotivardan Jaipuria told reporters here today.
"But normal rains -- that are expected -- will douse inflation by the middle of the year at around 5 per cent," he said.
Industrial growth is expected to climb up in the second half of the year to 10 per cent from 6.5 per cent in H1 FY 10 on the back of the base effect of last year's meltdown and the recovery in machinery production seen since June 09, BofAML said.
Just as inflation cools off, year-on-year industrial growth will hit a soft patch in June-September 2010, it said.