The Reserve Bank (RBI) will probably keep the repo rate unchanged at 6.25% on Thursday, while the cash reserve ratio will almost certainly be held steady at 6.0% given ongoing tight liquidity conditions. Nonetheless, the upswing will probably stay strong and we believe that overheating remains the big near-term concern. The upshot is that we expect the RBI will have to tighten again soon and we anticipate the repo rate will rise by 25bp at the end-of-January review. During 2011 as a whole, the repo rate is forecast to move up 75bp, and the risk to this view is that the RBI hikes by more.
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