Lehman Brothers see further hike in repo and CRR rates

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Mumbai, Jun 26 (UNI) Investment Banker Lehman Brothers is revisiting its envisaged 7.3 per cent growth in GDP for India this fiscal and expected inflation to hover around 9.8 per cent.

In its latest comment, post hike in repo rate and CRR by 50 basis points by the Reserve Bank of India to counter the runaway inflationary trends, Lehman Brothers said ''Incremental fiscal and supply side measures to tackle inflation have become difficult because of their negative effect on the government's already rising fiscal deficit. Therefore, monetary policy has become the first line of defense to tackle inflation.'' The comment added that for most of the this year the current rising cost pressures would have an adverse effect with the Wholesale Price Index (WPI) inflation likely to remain in double digits for most of 2008 and expected it to average at 9.8 per cent y-o-y in FY09.

''Based on our view that inflation is yet to peak, we expect the RBI to follow up with another 25 bps hike in repo rates in the July 29 policy and hike the CRR by another 50 bps during Q3 2008. While growth has been strong so far, cost-push inflation, interest rate hikes and tighter financial conditions will slow GDP growth even further. We are reviewing our current GDP growth forecast of 7.3 per cent y-o-y for FY09,'' it said.

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