RBI likely to raise repo rate

RBI faces pressure to raise the repo rate by 25 basis points to 5.50 percent at its October 7 meeting, a poll of economists showed.

The poll showed 20 of 21 economists expect the 25-basis-point increase. Data showed 7.8 percent GDP growth, which economists said gives the central bank more room to tighten policy.

Economists cited rising oil prices, domestic inflation risks and higher US interest rates as reasons for the anticipated move.

RBI meeting on Oct 7

Economists said a 25-basis-point rise would put upward pressure on short-dated government bond yields as markets adjust expectations for policy. They added the move would narrow the interest-rate gap with the United States and could support the rupee by tightening yield differentials.

Higher domestic rates would raise borrowing costs for businesses and households; economists said banks are likely to pass through at least part of any increase to loan rates, lifting financing costs across the economy.

Market participants will watch the RBI decision on October 7 for confirmation of the expected 25-basis-point increase.