Reddy's dilemma: to raise credit rates or not

REDDY FOR RATES: Network 18 poll says RBI will raise repo rate, rate at which banks borrow from central bank.

J & K | Chhattisgarh | Delhi | MP |
Mizoram | Rajasthan

Featured Blog

Rajdeep Sardesai

26/11: Terror comes precariously close

Featured Slideshows

New Delhi: When Reserve Bank of India (RBI) Governor Y V Reddy holds a meeting with bankers on Tuesday he will have some tough decisions to take.

The RBI’s quarterly monetary and credit review comes just as inflation eases to 11. 89 per cent for July 12 from a previous week’s high of 11.91 per cent, but the Governor is walking on thin ice.

His dilemma is that any hike in rates will affect availability of credit to the industry, thereby hampering economic growth. So will he or won't he hike rates?

According to a Network 18 poll, 64 per cent of the respondents feel that RBI will hike Repo rate by 25 basis points. The Repo rate is the rate at which banks borrow from RBI. But 36 percent pollsters responded negatively.

On hiking Cash Reserve Ratio, the portion of savings that banks need to park with the RBI, 32 per cent felt that RBI would hike CRR by 25 basis points, while 68 per cent felt that there would be no hike in CRR.

On RBI hiking all Rates, at least 25 per cent felt that RBI would hike Repo & Reverse Repo rate while 26 per cent felt that RBI would not tinker with current rates. However, 49 per cent of the respondents felt that the Central Bank would hike at least one of the rates.

The poll shows that brokers were more optimistic with only 27 per cent responding that RBI will like CRR and 55 per cent responding that Repo rate will be hike. As many as 18 per cent of the respondents felt that RBI would not hike any of the rates.

“I am quite hopeful that we are not going to see significant tightening at least over the next two months, given the fall in crude prices,” says Madhu Kela, head of Equity Investments, Reliance Mutual Funds.

That leaves the RBI Governor with some tight rope walking between containing inflation while keeping the growth rate intact.