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Finmin expects RBI to raise rates further

Last Updated: Tuesday, April 13, 2010 - 15:08

New Delhi: The Reserve Bank is likely to further tighten its monetary policy in its April 20 policy review to tame rising inflation, Financial Services Secretary R Gopalan said.

"I share the view of some experts that some further amount of tightening is required," Gopalan told reporters on the sidelines of a function in the capital.

The central bank is reviewing its monetary policy on April 20 and is widely expected to further hike its key rates and/or ratio to rein in rising inflation.

The overall inflation, based on wholesale prices, has risen to 9.89 percent in February, much beyond the projection of 8.50 percent that the RBI had expected for March-end.

"Inflation will certainly be an issue which the RBI will take into account," the Finance Ministry official said reasoning for his view.

In January, the central bank had raised the cash reserve ratio (CRR), the amount that banks are mandated to park with the Reserve Bank, by 75 basis points to 5.75 percent.
It was followed by another round of monetary action in March where RBI raised its short term lending and borrowing (repo and reverse repo) rates by 25 basis points each to 5 percent and 3.5 percent, respectively.

On the kind of instruments the central banker might use to further tighten its monetary stance, Gopalan said, "What instruments they will use, it is for them to decide."

However, Gopalan agreed that there is an issue of growth and the central bankers will have to strike a balance between growth and inflation.
On the issue of recapitalisation of banks, Gopalan said the proposal of Rs 15,000 crore has been sent to the Cabinet for its approval.

However, the State Bank of India (SBI) has not approached for any recapitalisation from the government and they are looking for alternatives to raise capital, he said.


First Published: Tuesday, April 13, 2010 - 15:08

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