RBI may leave interest rates untouched; may hike CRR

Mumbai, Sep 26 (UNI) With the RBI policy review due next month, experts believe Reserve Bank may bid for another hike in Cash Reserve Ratios (CRR), though it may opt to leave the interest rates untouched.

Falling Index of Industrial Production(IIP), which has hit a nine month low of 7.1 per cent as against 13.2 per cent last year, along with the higher GDP projections, may prompt the regulator to hold a status quo in the interest rates, they said.

''RBI may rather use the tools of MSS bonds and CRR to balance the liquidity condition. After the Fed cut, they have seemingly chosen a 'wait and watch policy' on other leading economies, before mooting any policy changes,'' Development Credit Bank's Senior Forex Dealer Suresh C K told UNI.

RBI, yesterday, had relaxed norms to facilitate more Forex outflows by raising the pre-payment limit of External Commercial Borrowings (ECBs) from USD 400 million to USD 500 million while investment limit for corporates in their overseas joint ventures was raised up to 400 per cent of their net worth as against 300 per cent at present.

''With the relaxation norms RBI is looking for a fund outflow of upto USD 10 billion in another one year. This will balance the inflow-outflow balance,'' Corporation Bank's Senior Dealer Sudharshan Bhatt.

Experts said that the tightening stand of the regulator may continue in the mid-term policy with feasible hike of 50 basis points in CRR ratio.

In its last quarterly review, RBI had hiked the CRR ratio by 50 basis points to 7.00 per cent from 6.50 per cent.

With the massive flows entering the country after the Fed cut, which is estimated to be around USD one billion in the last few weeks, experts also said that containing the currency appreciation will no more be an easy affair for the regulator in the way ahead.

UNI