RBI may increase repo rate

India was expected to stand out from the rest of the developed world in limiting the pace of increases in its borrowing costs, but a spike in consumer prices last month will make it difficult for the central bank to immediately break ranks with its peers on either side of the Atlantic.

The Eurozone central bank raised rates by an unprecedented three-quarters of a percentage point recently to anchor inflationary expectations, while the US Federal Reserve has indicated it is not done with rate tightening just yet despite the very real threat of protracted economic contraction.

Against this backdrop, India seemed an island of tranquility where growth was back on the front burner amid a visible softening in prices since April.

But August has changed that, and analysts now believe the Reserve Bank of India (RBI) may have to press ahead with another half-a-percentage-point increase in repo rate at the end of the month.