RBI likely to hike rapo rate to 6.75%

RBI likely to hike rapo rate to 6.75%

Industrial growth is slowing and so is inflation. So, should theReserve Bank of India (RBI) pause or does it need to raise rates yet again on March 17? CNBC-TV18’s special show Indianomics gets an exclusive poll of bankers and economists.

n the past month the RBI has moved a bit more to breathe life into India's comatose bond market. It has allowed 91 day T-bill based interest rate futures. It has also announced draft rules for credit default swaps, which allows bond investors to buy protection.

D Subbarao, Governor, RBI said, “For inflation management, we have to raise policy interest rates. For protecting, promoting and preserving recovery, we need to keep interest rates low.

RBI Governor is clearly in a dilemma over inflation management and growth. But inflation control is expected to remain the central bank’s focus in its mid-quarter review on March 17. A CNBC-TV18 poll of bankers and economists shows that 70% of those polled expect the RBI to hike the repo rate by 25 bps to 6.75% while 65% expect a 25 bps hike in the reverse repo rate to 5.75%.

Samiran Chakrabarty, Head of Research, Standard Chartered said, “RBI till now has clearly communicated the stance that they want to balance between growth and inflation. That's why they want to take a calibrated stance to raise rates. From that perspective 25 bps hike seems to be on the cards.”

The street is more or less convinced that inflation for March-end will come in higher than RBI’s forecasted 7%. 80% of the respondents expect March-end inflation to be above 7%, only 20% see it at 7% or lower.

With the liquidity situation stabilising, majority believe the RBI will not extend the facility of extra borrowing that banks can do upto 1% of SLR beyond April 8. So how will actual lending and deposit rates move after the policy? Majority believe banks will not hike lending or deposit rates immediately even if the RBI moves on policy rates.

Source: www.moneycontrol.com

Regards,

Maulik Doshi

DENIP Consultants Pvt Ltd.