Mumbai: The Reserve Bank’s move of hiking its repo and reverse repo rates by 0.25% each evoked no surprise amongst bankers who said the hikes were on expected lines.
“The hikes were expected to tame inflation which has not yet tapered-off despite a good monsoon,” Citibank’s CFO, Abhijit Sen, told the news agency here on Tuesday.
Echoing this view, private sector Yes Bank’s Group president-financial markets & chief financial officer, Rajat Monga, said that inflation-control is uppermost on the RBI’s mind and hence the rate hikes.
The Reserve Bank has said that inflation is well above its comfort level and wants to bring it down to 3% in the medium-term.
One of the highlights of today’s policy is the increase in risk weight for residential loans above Rs 75-lakh, Citibank’s Sen said.
“The RBI is concerned over rising realty prices and wants to monitor the flow of credit to this sector,” he said.
He described the increase in standard provisioning on teaser home loans as a “prudential norm and a measure aimed at risk-containment.”
The rise in risk weight is aimed at dissuading high-amount loans to the realty sector, Monga said, adding “the RBI now seems to want to manage asset prices through the bank channel and not through rates.”
Asked if he expected lending rates to immediately rise, Monga replied in the negative saying “banks will wait and watch the situation.”
Liquidity is tight presently but is likely to ease going forward, he said.
“If the liquidity tightening persists, then banks will be forced to up their deposit rates which in turn will lead to a jacking-up of both their base and lending rates. But I don’t see it happening immediately,” Monga said.