25 bp hike in reverse repo rate likely next week -

[sunil]

Credit Suisse is expecting a 25 bp hike in reverse repo rate likely next week and keep the repo rate unchanged which effectively narrow the policy rate corridor. This would be a mild action, in our view, but we think some tightening action is likely, as unprocessed food prices in recent weeks have inched up again and July IP has surprised positively. The reason we feel the central bank is unlikely to go whole hog and hike the repo rate too (which is the higher of the two and currently at 5.75%) is due to the slightly dovish comments by the RBI in August. Between now and end-March 2011, we are pencilling in 75 bp of hikes in the policy rates.

[sunil]

Kotak's Views on RBI Policy Review

We now expect both repo and reverse repo rates being raised by 25 bps each, instead of just a 25 bps reverse repo rate hike. Incremental information is all pointing to dangers of pausing. CPI inflation for July 2010 came at 11.25% from 13.7% in June versus our expectation of 10%, as the index jumped up 2.3%, the highest in a year.