RBI to hike key rates in mid-2010 - CLSA

By Rajesh Kumar Singh

NEW DELHI (Reuters) - The Reserve Bank of India (RBI) may hike its key policy rates in mid-2010 as it shifts its focus from growth to containing rising inflationary pressure, a senior economist with brokerage and investment firm CLSA said.

In its Oct. 27 policy review, the RBI left its short-term lending rate steady, as it looked to support a nascent economic recovery.

However, it did flag off its inflationary concern by raising wholesale-price inflation projection to 6.5 percent with an upward bias from 5.0 percent earlier.

"They are already worrying about inflation," Sharmila Whelan told Reuters in an interview on Tuesday.

Whelan said the WPI inflation could rise to around 7 percent by end-March 2010, fuelled by supply-constraints and excess liquidity.

"I am looking for CRR (cash reserve ratio) to rise in early 2010 and interest rates to be rising by mid-2010," she said.

Analysts polled by Reuters were unanimous interest rates would be lifted at least once by the end of April.

The central bank cut its short-term lending rate by 4.25 percentage points between October 2008 and April 2009 to 4.75 percent as it tried to revive demand in an economy hit harder-than-expected by a global downturn.