Mr Prasanna went on to reason that India would not want to “fall behind the curve in terms of interest rate differential given that central banks globally are raising interest rates”.
DBS economist Radhika Rao also predicted a rate hike.
She said: “For bond markets, a 25 bps hike accompanied by a hawkish stance could trigger the 10-year bond yield to rise to 8.25 percent.”
Anindya Banerjee, deputy vice president, currency derivatives at Kotak Securities, added: “The RBI is ready to keep real rates high because the policy mandate is to anchor inflation.
“The biggest policy anchor for rupee is high real rates. Raising the repo rate will increase the real interest rates and help in attracting fresh foreign inflows which will help in containing the rupee.”
Oil prices have reached four-year peaks as the market focused on upcoming US sanctions on Iran while shrugging off the year’s largest weekly build in US crude stockpiles.