Analysts see Rajan effecting third hike on December 18

The latest retail inflation data which has hit a nine-month high, could force the Reserve Bank of India (RBI) to unleash another 0.25 per cent hike in its short-term lending rate, though concerns persist on the growth front, according to analysts here.

"While growth is stabilising, it remains soft. However, the main concern for the central bank will be inflation, which may compel it to raise the policy rate again next week by 0.25 per cent, to deliver on its hawkish promises and, through this, help anchor inflation expectations," said British brokerage HSBC.

It said this in a note issued by its Singapore office, a day after the government released November's consumer price inflation (CPI) numbers.

Its US peer Bank of America-Merill lynch concurred, saying that a 0.25 per cent hike on December 18, when RBI Governor Raghuram Rajan would release the mid-quarter review, is a "done deal", adding that along with the hike, the RBI could also seal the shift of the money market to the repo mode from the marginal standing facility (Marginal Standing Facility).

Banks depend on the repo window for their liquidity requirements and since borrowings under repo are capped, banks have to go to the MSF for additional fund requirements.

In a surprise move, the RBI had hiked the MSF by two pecentage points on July 15 to help the battered rupee to recover, due to which the MSF had become the operational rate.

Official data released yesterday was a mixed bag for the RBI vis-a-vis policymaking.

It said that consumer price inflation touched a nine- month high of 11.24 per cent in November, while industrial production growth rate shrank by 1.8 per cent, making it the first contraction in Index of Industrial Production (IIP) numbers in the last four months.