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RBI likely to hike repo rates: industry experts
Published on Tue, Apr 29, 2008 at 02:19 in Business section
Tags: Annual Credit Policy, RBI , Mumbai
RATE HIKE EXPECTED: Industry experts believe RBI will hike repo rate and thus signal higher interest rates.
Mumbai: A day before the Reserve Bank of India reveals its annual credit policy, a Network 18 poll finds out that more than half of industry experts believe the RBI will hike the repo rate and thus signal higher interest rates.
“Inflation is unacceptable and in this credit policy, this will be his key concern,” said RBI Governor Y V Reddy.
The six weeks since March 1, when inflation ran up from 5 per cent to 7.4 per cent, triggered much fury in Parliament and brought an unexpected, out-of-schedule Cash Reserve Ratio hike from Reddy.
Are the inflation figures unacceptable enough for Reddy to signal more tightness on Tuesday, or will he want to pause when to estimate the impact of the actions taken so far? The market is somewhat divided:
Sixty eight per cent of money market participants polled feel he will hike the repo rate in this policy, thus asking banks to raise rates.
Another 20 per cent polled feel Reddy will hike the reverse repo rate as well, thus giving a strong message against inflation.
“RBI is considering an increase in interest rates and it will signal the markets towards that, but whether it will happen or not we will leave it to the RBI Governor,” said IDBI Bank Chairman Yogesh Agrawal.
The other category of 32 per cent says that the wholesale price index, which was rising by 12-18 ticks in March, rose by just three ticks in the second week of April. That will be reason enough for Reddy to pause.
Also since the fed will, in all probability cut rates, a hike in India will increase the capital flow problems.
Some believe that since the current inflation is largely because of liquidity pouring in due to the loose US policy, repo would be the wrong instrument.
Instead the Governor would stick to CRR hikes, though not immediately. 92 per cent of those polled don't see a CRR hike in the policy. They say the RBI Governor will rather wait for the latest CRR hike to play out.
A minority of those who don't believe the Governor won't change any rates, however, hold that the pause, if at all, will be temporary. They expect an extremely hawkish stance that will indicate the RBI will move any time, almost certainly before the next policy, thus keeping up the pressure on the market.
Besides dealers will also watch out for the RBI’s GDP growth forecast. The consensus is that he will forecast a 7.5 to 8 per cent growth rate.
Anything less will be seen as a sign that he intends to tighten rates further.
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