Mumbai: Growing concerns over runaway inflation and signs of stable economic recovery may prompt the Reserve Bank to hike its key short-term lending and borrowing rates by up to 0.50% in its annual monetary policy on 20 April, top bankers said on Sunday.
The apex bank, which began unwinding its monetary stimulus by upping the Cash Reserve Ratio (banks’ portion of deposits with the RBI) by 0.75% in January and policy rates by 0.25% in March, is set to tighten the policy stance further to fight inflation — presently hovering beyond its comfort zone, they said.
Ballooning prices of milk, fruits and pulses pushed up food inflation to 17.70% for the week ended 27 March while the overall inflation that includes variation in prices of food and non-food items, presently stands at 9.89%.
But banks are unlikely to hike their lending rates in the immediate future unless the quantum of increase in RBI’s key-rates is significant enough to force them pass on the cost burden to the customer, Oriental Bank of Commerce’s chairman and managing director T Y Prabhu said.
“RBI is likely to hike the rates by anywhere between 0.25-0.5% as the inflation situation warrants monetary action. I do not expect lending rates to go up immediately as the liquidity in the system is enough to absorb even a 0.25% rise in key-rates,” Prabhu said.
Besides the inflation concerns, the pick up seen in the economic recovery is also expected to provide comfort to the central bank to go ahead with its exit strategy from the monetary stimulus, bankers said.
“I expect that the cash reserve ratio ratio will be hiked by 0.25% as the focus of the central bank now is to bring down inflation,” State Bank of India chief financial officer S S Ranjan said.
Ranjan, however, was of the view that the Reserve Bank is unlikely to hike the policy rates immediately after it did so just last month although hike in CRR is very likely. Another hike in key policy rates in a short span of time is unlikely to happen, he said.
Recently, after the pre-policy consultation with the Reserve Bank, Indian Banks Association chairman M N Nair had said that the primary concern of the apex bank was to contain the high inflation and it will have to take steps to check the inflationary pressures.
State-owned Central Bank of India’s chairman S Sridhar expects the Reserve Bank to hike its policy rates by 0.25-0.5%. Central Bank would take a call on hiking its lending rates after assessing RBI’s policy signals, Sridhar said.
A similar view was expressed by Kolakata-based Uco Bank’s chairman, S K Goel who said that in all likelihood the RBI may hike its repo, reverse repo rates by 0.25-0 .5% in the policy.