Standard Chartered Bank said the Reserve Bank is likely to raise the amount banks need to mandatorily park with the apex bank (CRR) by 50 basis points at its forthcoming monetary policy review.
"We expect the RBI to raise the cash reserve ratio(CRR) on January 29. We also see a possibility of a marginal policy rate hike," the bank's head of India research Samiran Chakraborty said in a research note.
"We expect the RBI to embark on an early but gradual exit from monetary stimulus. In our view, a 50 bps hike in the CRR and a marginal pre-emptive 25 bps hike in policy rates would be appropriate for a sustainable non-inflationary recovery."
According to Chakraborty, inflation threatens to spread to non-food items, fuelling inflationary expectations. He expects the wholesale price inflation to inch up towards 8.5 per cent by the end of March.
Food prices had been on the rise for the last couple of months, touching a ten-year high of about 20 per cent in December before slowly easing in early January. However, the overall inflation breached the 7 per cent-mark in December.
The central bank had projected inflation to climb up to 6.5 per cent by March end. The WPI-based inflation had been in sub-zero levels for several months last year before leapfrogging to 7.31 per cent in December.
"The RBI faces the classic central bank dilemma of trying to contain inflation while supporting growth," he said.
