The Reserve Bank of India (RBI) and the Monetary Policy Committee (MPC) start their deliberations today in a rather confusing international backdrop. Recession fears are strong as shown by the US bond yields but inflation numbers from South Korea to the US are not letting up.

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Back home, the rupee has recovered from a low of 80.06 per dollar to a high of 78.49 per dollar in just 2 weeks.

In an interview with CNBC-TV18, Santanu Sengupta, India Economist at Goldman Sachs said that the financial services company expects a 50 bps rate hike by the RBI on August 5.

“We are looking at 50 basis points rate hike in the August policy on Friday and thereafter a slow down to 35 and 25 by the end of the year, which means that I am looking at 6 percent repo rate by the end of the year,” he said.

Also Read: RBI to hike repo rate between 30-50 bps on August 5: Citizens' MPC

Talking about the rupee, Sengupta said that it is likely to hit the 80-81 per dollar mark in the next 3 to 6 months.

“When you are faced with a commodity price driven terms of trade shock, there will be some adjustment in the currency and therefore, your domestic monetary policy also has to react to that. So, on the dollar rupee we are expecting 80-81 in a 3-6 month horizon,” he said.

Also Read: Home loan prepayment and key factors to consider as RBI set to hike repo rate

The investment banker expects inflation (CPI) at 7 percent given commodity price movement.

“We think 6.7 is about okay. We are at 7 percent inflation with a commodity price level that we are assuming given our house call of almost USD 130 oil prices. The RBI assumed oil price at USD 105 a barrel. We think that 6.7 is about appropriate,” said Sengupta.

For the entire interview, watch the accompanying video

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(Edited by : Abhishek Jha)