New Delhi: The Reserve Bank is unlikely to signal hike in interest rates in its forthcoming monetary review this week as economic recovery is still in the nascent stages, but may ask banks to keep more cash with the central bank to check inflationary pressures, say economists.
Moody's Economy.com said, "With the recovery in its early stages, the Reserve Bank of India is expected to refrain from hiking its twin policy rates this month."
However, RBI in its review on October 27 will raise the Cash Reserve Ratio, the proportion of deposits that banks keep with the central bank, by 50 basis points to signal to the markets that it has adopted a tightening bias, it added.
Think-tank Economist Intelligence Unit (EIU) Research Director Manoj Vohra said the central bank is unlikely to signal hike in key rates in its monetary policy, however, it can raise the Cash Reserve Ratio by 25-50 basis points.
"RBI will have a close look at the Cash Reserve Ratio (CRR). It might hike CRR by 25-50 basis points," Vohra said.
DBS Bank said the Statutory Liquidity Ratio (SLR), the minimum share of bank deposits to be held in government bonds, cash, gold, could be hiked as early as next week by one percentage point.
"We do not rule out a one percentage point hike in the
SLR rate to 25 percent reversing the 1 point cut implemented
in November 08," it said in a report.
HDFC Bank Chief Economist Abheek Barua said, "We continue
to believe that the policy will maintain a status quo...RBI
could wait a trifle longer before moving, especially since
there are equally strong concerns about whether the current
economic recovery will sustain."
Rating agency Crisil Principal Economist D K Joshi said
that RBI might not review rates in the policy.
The Prime Minister's Economic Advisory Council (PMEAC)
has already said it does not expect the Reserve Bank to change
its monetary stance in the policy review on October 27, as
well as in its next review.
The Reserve Bank faces a challenge to strike a balance
between promoting growth and checking inflationary pressures.
Though economy is showing some signs of improvement, the
recovery is still not on a strong footing.
Impacted by the global financial meltdown, economic
growth has slowed to 6.1 percent in the first quarter of this
fiscal against over 7.5 percent growth a year ago.
Industry, however, has started picking up, recording a
growth of 7.2 percent in July and 10.4 percent in August.
Inflation, on the other hand, reached 1.21 percent for
the week ended October 10 as prices of major food items firmed
up further. There are expectations that inflation might reach
6 per cent mark by the end of the current fiscal.
To help the economy get adequate flow of funds to weather
the impact of the financial crisis, RBI has eased money supply
since the middle of last September following the collapse of
the US financial services icon Lehman Brothers.
Bureau Report
First Published: Sunday, October 25, 2009, 11:55