In a bid to clamp down on resurgent inflation, the Reserve Bank of India, in its first monetary policy review of 2011, raised repo and reverse repo rates by 25 basis points to 6.5% and 5.5%, respectively. This is in line with street expectations. It also warned that higher food prices could become entrenched if steps to boost output are not taken.
In accordance to a CNBC-TV18 poll of bankers and economists, the cash reserve ratio (which is the percentage of their deposits that banks must keep with the RBI as cash) and statutory liquidity ratio (SLR) have been left unchanged. Thus, CRR and SLR continue to stand at 6% and 24%, respectively.
As an instant effect of the credit policy, the Nifty hit the 5800-mark but immediately half of gains wiped out after central bank's forecast about GDP growth and inflation. The central bank upped its inflation forecast to 7% from the current 5.5%. This is likely to moderate in Q1FY12, RBI says. "Policy action will contain spill over to generalised inflation." The bank also said that the GDP growth rate may decline in FY12.
Experts believe that the RBI will continue raising rates going forwards. C Rangarajan, chairman of the Prime Minister's Economic Advisory Council said RBI has taken the right decision and expects RBI to continue with raising rates going forward. Sonal Varma India economist of Nomura Financial Advisory seconds that.
The brokerage community finds this to be a well-balanced move. When contacted, Sushil Finance said the RBI had tried to balance growth and inflation. "RBI is waiting for higher inflation." However, they too see hike of interest rate in month of April.
Source: www.moneycontrol.com
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Gaurav Agarwal
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DENIP Consultants Pvt Ltd
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