Bankers express split opinion on rates

Mumbai, Jan 28: The Reserve Bank of India will announce the third quarter monetary policy review here tomorrow admist speculations of cut in the rates by 25-50 basis points.

Divergent views are being reflected by the banking community with the cut being speculated in view of the recent US Federal Reserve rates cut by 75 basis points. The bankers feel the cut might help manage the liquidity in the local market. However, a few other bankers did not visualise any change in the existing policy.

The quarterly review is also being eagerly anticipated by the investment community following the roller coaster ride of the Sensex and Nifty last week.

Union Finance Minister P Chidambaram has already indicated that India will respond appropriately to the surprise cut in the interest rates by the US, which was currently at 3.5 per cent as against the RBI's repo rate at 7.75 per cent.

Indian Banks Association Chief Executive H N Sinor said that anticipating a capital inflow into the Indian and Asian markets in the wake of the cut in the US Federal rates, the indications are that RBI might narrow down the interest rates, The apex bank may resort to a balancing act between curbing high liquidity, Mr Sinor pointed out adding, ''The RBI may either reduce the reverse repo or the repo rate by 25 to 50 basis points in order to moderate capital flows.'' Dena Bank Chairman P L Gairola also expressed a similar view and added that the RBI might go in for a 0.25 per cent cut in Cash Reserve Ratio (CRR) to manage the liquidity in the market.

The difference between the repo and reverse repo rates, which was 1.75 per cent, could be narrowed, he added.

Country's largest lender, State Bank of India's Chairman O P Bhatt and Chairperson of Central Bank of India H A Daruwala were of the opinion that the RBI might consider a cut in repo rate by 25 basis points but maintain the CRR at the current levels.

A few other bankers feel that the Apex bank might adopt a ''wait and watch'' stance and maintain the status quo both on short term rates and CRR.

Chairman of public sector lender Union bank M V Nair supported the same sentiments and T S Narayanasami of Bank of India said, ''Any change in interest rates is unlikely in present situation.'' Mr Narayanasami said, ''The global markets are still volatile and so is the domestic market and increase by 25 basis points in CRR can be considered in order to manage the inflows into the domestic system.'' Economists were of the view that the US economic slow down might make a dent on a short term basis but the economy would be least affected.

It is widely speculated that the RBI might go in for either a cut in the repo rate by 25 basis points or cut CRR by a similar measure. Banking sources also felt that the central bank might go in for some regulatory changes in the monetary policy.

UNI