RBI likely to remove cap on Reverse repo window

Mumbai, July 30 (UNI) The Reserve bank of India is set to undertake the quarterly review of the monetary policy tomorrow even as industry think-tanks believe it is likely to keep the policy rates unchanged and chances are also bright for removal of reverse repo cap.

The removal of the cap on reverse repo window, which is at Rs 3000 crore presently, is almost certain as an effective measure to suck out the surplus cash in market.

Such a move will push the call rates sharply to above 6.00 percent from the current lower margins. Call rates had opened at a three week low of 0.1-0.2 percent today.

''Removal of cap on reverse repo window will push the call rates upto 6.00 percent and may also result in further strengthening of the Rupee. Some steps to modulate the excess liquidity in the market is certain'', said a senior banker.

Bankers said the policy review may also set its focus to bring in a further reduction in the ceiling on interest rates banks can offer on foreign currency deposits as a measure to keep a tab on the enormous foreign currency inflows. Reserve bank had recently reduced the interest on NRI deposits by 50 basis points.

Though a further hike in Cash Reserve Ratios(CRR) are not in sight with inflation below 4.5 percent and credit growth at an average 25 percent, a few banker's said a hike in CRR can't be ruled out if the government is stern on liquidity check.

Money supply margins, which are at around 21 percentage currently, much above the desired levels of 17 percent, may also back this move.

''Hike in CRR is not likely this time. But it may be introduced for a certain period with a cut-off date.'', said a senior banker.

Some of the public and private sector banks like Union Bank of India (UBI) had reduced interest rates on term deposits recently while many private players, including the country's second largest bank ICICI are awaiting the RBI policy review to moot a decision in this regard.

UNI