Reserve Bank of India near the end of policy tightening

The Reserve Bank of India (RBI) raised its repo rate by 25bp to 8.25% today, as anticipated, citing further increases in core inflation. Provided the euro-zone crisis does not escalate dramatically in the coming weeks, we think the RBI is likely to implement one more 25bp hike this year. But after that it will keep rates on hold until well into 2012, when falling inflation should allow it to cut rates.

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