RBI likely to signal stable rate regime, CRR hike a toss-up

MUMBAI: The Reserve Bank will have to take a tough call on whether to cut key interest rates or maintain status quo when it reviews its monetary policy on Tuesday at a time when inflation is at a five-year low even as the problem of excess liquidity in the banking system persists.

RBI Governor Y V Reddy has a difficult balancing act to perform as peaking interest rates have begun impacting the high growth momentum while the liquidity problem is being aggravated by surging foreign inflows.

While some bankers and economists expect a marginal cut in key short-term rates, others feel that RBI might not do so in the face of inflationary expectations looming large due to surging global oil prices. With interest rates having peaked and inflationary pressures persisting, RBI is not expected to tinker with the benchmark rates, they said.

Some economists felt that the apex bank might reduce the difference between the repo and reverse repo rate, while some others felt the central bank would signals a stable interest rate regime while it would be a toss-up as far as a hike in cash reserve ratio (CRR) is concerned.

"There are no domestic compulsions calling for any change in monetary policy. I expect nothing dramatic... the tight monetary policy initiated a year back will continue," Crisil's Chief Economist Subir Gokarn told PTI here.

"A CRR hike is a possibility but there is just an outside chance that the RBI might not effect it this time round," Yes Bank's Chief Economist Shubhada Rao said.

Private sector Kotak Mahindra Bank's Managing Director Uday Kotak said he expected "a flat and benign policy" in the light of the steps taken by SEBI for checking inflows into the country through Participatory Notes (PNs).

Source: timesofindia.indiatimes.com