RBI may still hike rates before July - HSBC

MUMBAI Mon May 31, 2010 1:53pm IST

A man walks past the entrance of the Reserve Bank of India headquarters in Mumbai January 27, 2009. REUTERS/Arko Datta/Files

A man walks past the entrance of the Reserve Bank of India headquarters in Mumbai January 27, 2009.

Credit: Reuters/Arko Datta/Files

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MUMBAI (Reuters) - The Reserve Bank of India (RBI) may yet raise interest rates before a scheduled policy review in July, HSBC said on Monday, after data showed India's economy grew an expected 8.6 percent in the final quarter of fiscal 2009/10.

"Sure, the euro jitters may have left policy-makers across the world in a more accommodative mood, but in India tightening is now needed to avoid a hard landing later on," Frederic Neumann, managing director and co-head of Asian Economics Research at HSBC, wrote in a note.

As domestic demand growth outstrips demand overseas, India's trade deficit may widen sharply, Neumann said, adding this is partly the reason for HSBC's view that the Indian rupee may be one of the Asian currencies likely to underperform.

India's economy grew at its fastest pace in six months in the quarter through March 2010, fuelled mainly by government and consumer spending, which is expected to allow policymakers to focus on anchoring inflation that is hovering near 10 percent.

The 8.6 percent expansion in the fourth quarter of the fiscal year 2009/10 was broadly in line with a median forecast of 8.7 percent in a Reuters poll and lifted the annual average growth rate for the full fiscal year to a slightly better-than-expected 7.4 percent.

(Reporting by Jeanette Rodrigues; Editing by Sunil Nair)

(For more business news on Reuters India click in.reuters.com)

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