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RBI expected to ease liquidity in policy review on Thursday

RBI expected to ease liquidity in policy review on Thursday
PTI
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First Published: Wed, Dec 15 2010. 02 52 PM IST
Updated: Wed, Dec 15 2010. 02 52 PM IST
New Delhi: With inflation at 11-month low level, the Reserve Bank of India (RBI) is likely to keep policy rates unchanged but may take steps to ease the liquidity situation in its policy review on Thursday, bankers said on Wednesday.
The central bank could press the pause button on rate hike, State Bank of India (SBI) chairman O. P. Bhatt said on his expectation from the mid-quarter review of the monetary policy.
The RBI this year has hiked its key rates six-time. The last increase on 2 November when the repo rate was hiked by 0.25% to 6.25% and the reverse repo by 0.25% to 5.25% to anchor inflationary expectation.
Repo is the rate at which it lends to the banks, while reverse repo is the rate at which it borrows from banks.
According to Corporation Bank chairman and managing director Ramanath Pradeep, “there would not be any policy rate hike as inflation has started easing.”
For the month ended November, inflation declined to 11-month low of 7.48%.
Reserve Bank governor D. Subbarao had said in the second quarter review last month that “based purely on current growth and inflation trends, the Reserve Bank believes that the likelihood of further rate actions in the immediate future is relatively low”.
Given the tight liquidity situation now, there are widespread expectations that RBI would take some more steps to ease the pressure.
Bankers expect some measures as advance tax payment may drain about Rs60,000 crore out system.
The system’s liquidity deficit now is much higher than the RBI’s comfort level and is expected to come under further stress due to seasonal tax-related outflows.
Any further increase in policy rates at this point could exacerbate the strain, said Standard Chartered Bank India economist Anubhuti Sahay.
Prime Minister Economic Advisory Council chairman and former governor of RBI also said the central bank might hold key policy rates as inflation for November has fallen to 11-month low of 7.48%.
“Perhaps the declining trend in inflation might tilt in favour of holding on to the present situation,” he said.
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First Published: Wed, Dec 15 2010. 02 52 PM IST
More Topics: RBI | Banks | Repo rate | CRR | Inflation |