Stage set for another RBI interest rate hike

New Delhi, May 14

Despite the fact that the borrowings by the Centre and states will become more expensive, the stage has been set for an interest rate hike by the RBI next month as three crucial indicators have remained stubborn to change.

FII deals

• Rs 1 lakh crore worth of shares and securities sold by FIIs
• Rs 63K cr worth of shares purchased by them
• Rs 37K cr is the amount by which FIIs remain net sellers

Inflation has been above the RBI’s upper tolerance band of 6 per cent since January this year. The latest figures showed that India’s foreign exchange reserves continued to decline for nine consecutive weeks. These have now touched $595.95 billion, the lowest in the past 12 months.

Another set of figures showed that despite the 0.40 basis points hike on May 4 in the repo rate — at which the RBI lends to banks — foreign financial institutions (FIIs) remained net sellers. This month, till May 13, the FIIs sold shares and securities worth Rs 1 lakh crore and bought 63,000 crore worth of shares, thus remaining net sellers of about Rs 37,000 crore. The FIIs are getting attracted by hike in interest rates in developed countries to contain domestic inflation.