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CRR hike slightly aggressive, say economists

Last Updated: Friday, January 29, 2010 - 15:26

Mumbai: Economists were "slightly
surprised" by the extent of hike (75 basis points) in mandatory cash reserves
of banks held by the Reserve Bank, but felt that the apex bank's move was
strongly influenced by rising inflationary pressures.

"The market was expecting a 0.50 percent
hike in CRR -- I feel the 0.75 percent is slightly aggressive. It is more a pre-emptive
move to control inflationary expectations," Bank of
Baroda
's chief economist Rupa Rege-Nitsure said.

"The move is targeted at combating the
liquidity over-hang in the system," Nitsure said.

Crisil director and principal economist DK
Joshi said: "Today's move is a clear enunciation that inflation has emerged
as a major concern for the RBI. This is clear from the fact that the apex bank
hiked CRR by 0.75 percent instead of by the widely-expected 0.50 percent."

While interest rate pressures are seen,
there may not be an immediate increase in rates, economists said.

The Reserve Bank on Friday upped the cash
reserve ratio from 5 percent to 5.75 percent, a move expected to flush out Rs 36,000
crore from the system. It also pegged expected inflation by end-March at 8.5
percent, sharply up from its earlier projection of 6.5 percent.

"Rate hikes would depend on the
overall growth dynamics. The Reserve Bank has clearly said that it would
continue to nurture growth while combating inflation," Yes Bank's Chief Economist
Shubhada Rao said.

"Rate hikes are unlikely in the
immediate horizon as economic growth is still on the agenda. I don't see banks upping
their interest rates -- at least, not yet," Rao said, adding liquidity was
comfortable and would remain comfortable even after the two-tranche CRR hike
announced today.

Crisil's Joshi described the RBI's GDP
growth projection of 7.5 per cent by March as a "pleasant surprise.
"This is a sharp (upward) revision -- and a pleasant surprise," he
said.

PTI

First Published: Friday, January 29, 2010 - 15:26
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