RBI may raise key rates to check inflation: Citi

With inflation spreading to non-food items, the Reserve Bank is likely to further tighten its monetary stance in its forthcoming annual policy, which may jack up interest rates, Citigroup said.

"With inflation getting a bit more generalised, we expect the RBI to raise rates once again in its policy on April 20 with a minimum additional 100 bps (one per cent) this year," Citigroup Global Markets report said. The probable RBI move will pressure interest rates to rise.

"We expect (interest) rate structure to remain high," the report added. The Reserve Bank recently raised the repo and the reverse-repo (short-term lending and borrowing) rates by 25 basis points to 5 per cent and 3.5 per cent, respectively, to contain inflation. Bankers had said they will wait for RBI's annual monetary policy to decide on hiking interest rates.

Even as food inflation has been moderating, it is spreading to non-food items. As such, overall inflation rate soared to 9.89 per cent in February and is expected to cross the double-digit mark next month.

Food inflation, which was nearly 20 per cent in December, has moderated to around 16-17 per cent. RBI had earlier projected inflation to be 8.5 per cent by end of the current fiscal.