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RBI likely to raise policy rates by 25 bps to tame inflation

Faced with stubborn inflation, RBI is likely to raised key policy rates by at least 25 basis points in its annual credit policy for 2011-12.



New Delhi: Faced with stubborn inflation, RBI is likely to raised key policy rates by at least 25 basis points in its annual credit policy for 2011-12 to be announced on Tuesday to arrest the rate of price rise, say bankers.

"Given the macro economic conditions, it is expected that the RBI would hike rates by at least 25 basis points to curb inflationary expectations," Indian Overseas Bank Chairman and Managing Director M Narendra told reporters.

He ruled out the possibility of a 50 basis points hike, indicating that it would not be necessary at this point of time.

In its last review of the credit policy for 2010-11 in March this year, the RBI raised the key policy rates by 25 basis points. The short-term lending (repo) rate was hiked to 6.75 per cent and the short-term borrowing (reverse repo) rate to 5.75 per cent.

This was the eighth rate hike in a row since March, 2010, to cool inflationary pressure.

Echoing a similar view, Oriental Bank of Commerce Chairman and Managing Director Nagesh Paydah said the central bank would raise rates further by 25 basis point to tame inflation.

"I have a feeling that the regulator would focus on containing inflation," Paydah said, adding that the RBI will, however, maintain status quo as far as the Cash Reserve Ratio (CRR) and Statutory Liquity Ratio (SLR) are concerned.

The policy also aims at maintaining an interest rate regime consistent with price, output and financial stability and managing liquidity with neither a surplus diluting monetary transmission nor a deficit choking off fund flows.

Prior to this hike, RBI had already raised policy rates seven times since March, 2010, with a hike of 175 basis points in short-term lending (repo) rate and 225 basis points in short-term borrowing (reverse) repo rate in its bid to arrest inflation.

The CRR, the amount of funds which lenders are required to park with the RBI, stands at 6 per cent, while the SLR, the amount of deposits kept in government securities, is 24 percent.

State Bank of India (SBI) Chairman Pratip Chaudhuri said, "The RBI will have to balance the two objectives of controlling inflation and also to sustain growth."

When asked if the RBI would hike policy rates by 50 basis points in its annual policy review meeting on May 3, Chaudhuri said there are other ways to cool the market apart from an interest rate hike.

"The biggest concern is inflation. Food inflation is still high and we are witnessing pressure on core inflation also. We believe the RBI will take measures to contain demand and we expect it to increase key policy rates on May 3, but by how much, it is difficult to say," said Union Bank Chairman and Managing Director M V Nair.

Punjab & Sind Bank Executive Director P K Anand said it is widely believed that there would be 25 basis points rate hike to tame inflation.

Overall inflation, measured on the basis of wholesale prices, stood at 8.98 per cent in March, higher than the 8 per cent projection of the Reserve Bank.

Food inflation at the same time increased to 8.76 per cent for the week ended April 16 compared to 8.74 per cent in the previous week.

PTI

From Zee News

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