RBI's October Rate Hike is a Surprising Bouncer for Indian Economy

It is shocking for most of the experts to witness RBI's October rate hike. Even as the country's retail inflation cooled off in August, an October rate hike by the Reserve Bank of India (RBI) is imminent, SBI Ecowrap report said.

"Even though CPI (Consumer Price Index) inflation has cooled off, we believe October rate hike of 25 bps is imminent, but the question is whether the magnitude of rate hike could be even higher by 25 bps (say 50 bps)," the report said.

"A currency crisis by logic calls for a bigger rate intervention, but given that RBI is now an inflation targeting central bank, it will be really difficult to justify such action with inflation numbers continuing to be in 4-4.7 percent range through current fiscal, with the downside at sub 3.5 percent in November 2018. Clearly, the RBI is now caught between Scylla and Charybdis!"

According to the data furnished by the Central Statistics Office (CSO), lower food prices eased India's August retail inflation to 3.69 percent from 4.17 percent in July.

However, on a year-on-year (YoY) basis, the CPI in August 2018 was higher than in the corresponding period last year when it stood at 3.28 percent.