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No credit tightening measures expected at RBI review meeting

No credit tightening measures expected at RBI review meeting
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First Published: Thu, Oct 25 2007. 12 10 AM IST

Updated: Thu, Oct 25 2007. 12 10 AM IST
Mumbai: The Reserve Bank of India is expected to keep its short-term interest rates unchanged next week and leave the reserve requirements of banks steady as it monitors a slowdown in inflation and waits for US rate moves.
None of the 11 analysts polled by Reuters this week expected any change to the repo rate at which the central bank lends to the market, which was last raised by 25 basis points to 7.75% in March. Many say the next move will be down.
Annual inflation, as measured by wholesale prices, eased to a five-year low of 3.07% in early October, and credit growth has decelerated to an annual 22%, below RBI’s target of 24-25%.
“At this stage, despite global cues, RBI might not want to cut rates, but by December if inflation stabilizes and there is some sort of better news on the commodities front, particularly food, then there is a case for a rate cut,” said Abheek Barua, chief economist at HDFC Bank Ltd.
Three analysts expect a 25 basis point cut in the repo rate at or before the next RBI review in January to help lessen India’s attractiveness to foreign funds, particularly if the US Federal Reserve follows up its September rate cut with further easing of interest rates.
The Fed makes its next decision on 31 October. Since its September cut, more than $7 billion (Rs27,720 crore) of foreign portfolio funds have flowed into India’s record-breaking stock market.
Analysts said proposals by the stock market watchdog Securities and Exchange Board of India to curb foreign investments through indirect instruments, known as participatory notes, could also slow inflows and keep money supply in check. Wholesale price inflation has been well below the central bank’s fiscal year target of 5% for 18 weeks, but analysts said authorities could be worried about high commodity prices.
At the previous review in July, RBI left the repo rate unchanged and also held the rate at which it borrows from the market unmoved at 6%. But it increased banks’ reserve requirements, known as the cash reserve ratio (CRR), by 50 basis points to 7%.
The CRR, the percentage of bank deposits that must be kept as cash with the central bank, has been raised by 200 basis points since December.
Only three economists polled expected a CRR increase this month to absorb inflation-fuelling surplus cash generated by the central bank’s intervention to cap gains in the rupee .
The rupee hit a nine-and-a-half-year peak of 39.27 in early October. REUTERS
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First Published: Thu, Oct 25 2007. 12 10 AM IST
More Topics: RBI | Inflation | Sebi | HDFC Bank | Abheek Barua |