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RBI likely to hike repo rate

Written by: Staff

Mumbai, Apr 17 (UNI) Even as the Reserve Bank of India prepares to unveil its annual monetary policy tomorrow, bank analysts and executives feel that the Central bank will increase short-term interest rate through 0.25 per cent hike in repo rate, leaving cash reserve ratio (CRR) and statutory liquidity ratio (SLR) unchanged.

Bankers also expect RBI to hike its short-term interest rates to contain inflation as economic growth and credit demand continue to be robust.

CRR at 5 per cent is likely to be left untouched as the liquidity situation improved in recent weeks to meet the growing demand for credit from all segments of the productive sector of the economy.

''I am not unduly worried over the hardening of assets prices which are broadbased across all segments of the economy'', said Partha Mukherjee of UTI Bank.

However, he felt that in the long term, liquidity could be a problem if the current trend of growth in the economy continues.

During its half-yearly monetary review in the last fiscal, RBI had raised reverse repo, the rate at which it absorbs funds from banks, by 0.25 per cent in January to 5.5 per cent, citing upward movement in prices of property, equity and gold. Simultaneously, the repo rate was revised upward at which RBI lends overnight funds to banks, by 0.25 per cent to 6.5 per cent.

Bankers said overall objective of the policy stance was to maintain stability in interest rate while meeting adequate liquidity for the needs of the economy.

''Interest rate is not a concern at the moment as liquidity situation has improved since March,'' said an analyst from a public sector bank.

ICICI Bank executive director Nachiket Mor said, ''I do not know if the rates will be raised or not. But, given the robust economic development and credit demand, I will be surprised if interest rates stay where they are''.

Besides, liquidity and inflation, RBI is also likely to address the operational riks of banks and other banking entities like cooperative banks and NBFCs under the Basel two norms with a standardised approach, bankers added.


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