Inflation to touch 17%. Repo Rate 11% – Barclays Research

In a somewhat bearish view on India, Barclay Capital research is forecasting the Indian Inflation to hit 17% by Sept-2008 and will continue to stay in Double Digits until May-2009. Well, current Indian inflation could be hovering around 13% with the Indian Government understating it and revising it in retrospect every week.

Barclays forecast repo rate [the rate at which RBI lends to other Banks] hike by 250 bps from current 8.5% and is likely to touch 11% by end of 2008. CRR is estimated to go up from 8.75% to 10.5%.

The USD is expected to touch Rs 44 within few weeks and may hit a high of Rs 46 within the next 6 months. If there is pressure on the INR to depreciate against the USD, Barclays is of the view that RBI will not cap USD/INR at a particular level.

Rise in the price of the Indian crude oil basket to USD145-150/bbl from the current USD132/bbl coupled with global financial turmoil and downgrade of Indian sovereign rating is the big trigger.

It was a gloomy report to read this morning. So if these estimates were to come true, then don’t expect a market recovery anytime within the next 12 months.