Robert Prior-Wandesforde, senior Asian economist, HSBC Holdings Plc, expects no changes in interest rates tomorrow. He thinks RBI is not done with tightening, and that he sees a further 50 bps CRR hike in June.

He expects WPI data to start falling from here on. RBI may also issue hawkish statement in credit policy, he says. It may pause for the rest of the year after another hike.

HSBC sees further rupee strength with a little RBI intervention.

CNBC-TV18 shares with domain-b its exclusive interview with Prior-Wandesforde.

The street is a bit divided and confused on what to expect from the Reserve Bank tomorrow. What would you say?
I am not surprised really. The added confusion here is the fact that the Reserve Bank obviously tightened rates at the end of last month. We do not expect any change in interest rates at tomorrow''s meeting.

But we certainly are not arguing that the Reserve Bank has finished raising rates yet. We are actually looking for a further move, a 50 basis points hike in the CRR, probably in between meetings, perhaps sometime in June.

So are you saying we might pause tomorrow and raise it sometime in another month or two down the line?
Yes, I think so. I certainly think there is a need for further tightening of monetary policy. It seems to me that interest rates are still at very low levels, still pushing demand growth well above supply. Despite the tightening, the economy will continue to exceed at a sustainable rate, and that in turn, will be consistent with further signs of overheating in India over the coming months.

Having said that, I also do expect wholesale price inflation to start falling from here. WPI inflation are internationally determined prices and if you look at year on year changes in oil prices and base metal prices and so on, they have come down. I think we will see WPI inflation drifting, at least in the manufacturing component, over the next few months.

Do you think the statement will be ambiguous tomorrow or do you think he will layout, even if he does not raise rates, a hawkish kind of range suggesting that another rate hike is certainly a possibility?
I would guess so. It will be fairly hawkish; we will obviously get an indication of the Central Bank''s latest thoughts on growth and inflation in terms of the year ahead view.

I would imagine they would forecast growth beginning with an 8 per cent, so another year of growth in excess of 8 perf cent. I wonder also as an outside bet whether they may bring down the inflation target.

We have seen over the recent times that the Finance Minister and the Central Bank to a certain extent saying that they would prefer to see inflation somewhere around 4 per cent. So, I wonder if that would be reflected in someway in tomorrow''s statement as well.

Do you think he might do something a little bit more targeted instead of tinkering with the repo rate and broader rates like raising risk weights in particular segments? Could that be something that he might do this time?
It is a possibility. Clearly, there are concerns about the strength of the real estate market still.

It is possible that they will do something further in terms of the provisioning requirement there. I would not put it as a central scenario but it is certainly a possibility.

What is the worst news for the market? Is it a rate hike tomorrow and the feeling that we are done with it or a lingering uncertainty that it might happen two months down the line?
If I am right in saying that it is too soon after the last increase to be increasing rates again, I think the market will just be a little nervous in expecting further increases ahead.

So, it may well not be a particularly favourable outcome for interest rates. But over the longer term, what I see happening is one further increase of 50 basis points rise in the CRR rate, possibly 25 basis points on the repo rate as well.

Of course, that might lead to further currency strength, but otherwise, one more monetary tightening, but then a pause perhaps for the rest of the year. The key reason to expect that pause is because wholesale price inflation may well come down.

Do you expect to touch upon the rupee address that issue as well because rupee has appreciated quite a bit over the last one month or so?
I am not sure how much they can do other than not increase interest rates. It seems pretty clear that the Reserve Bank has affectively run out of means to sterilize any intervention, if indeed they want to do any intervention.

So, I think they are very limited now on the ability to prevent the currency from rising. I think the market now largely determines the currency, and of course the market wants the rupee to go higher against the generally softer US currency.

We can certainly see further rupee strength ahead and little action from either the government or the Central Bank in stopping that happening. As I said, it is largely a free market at the moment in terms of the currency and it will go higher.