Economists split on rate hike, unanimous on hawkish RBI policy

Economists split on rate hike, unanimous on hawkish RBI policy
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First Published: Sun, Apr 27 2008. 12 24 PM IST
Updated: Sun, Apr 27 2008. 12 24 PM IST
By PTI
Mumbai: The Reserve Bank, which is in an unenvious position, thanks to high inflation, is bound to take a tough stand in its monetary policy which will be unveiled on 29 April, experts said.
“The RBI will maintain a hawkish stance and there is a possibility of a 0.25% increase in both the repo and reverse repo rates,” private sector Yes Bank’s chief economist Shubhada Rao said.
The key short-term rates - repo and reverse repo - are used as instruments by the apex bank for liquidity management in the system. Presently, the repo rate stands at 7.75% while the reverse repo rate, at 6%. RBI would target excess liquidity in the system, the economists said.
Though it had hiked the cash reserve ratio (CRR) limit only a few days ago by 0.5%, the apex bank could still hike the reverse repo rate, felt Enam Securities’ chief economist Sachichidanand Shukla.
“My view is that, the RBI might effect a 0.25% hike in the reverse repo and leave the repo rate untouched. This is a softer option,” he said. Shukla reasoned that a repo rate hike might not impact inflation in the short-term, and, besides, it would affect economic growth which was already showing signs of a slowdown.
“If repo is hiked, then banks too might be forced to hike their interest rates,” Shukla said. Inflation is and will continue to be a major challenge, Rao said, adding, with global commodities and fuel prices remaining high, combined with inflation remaining above the 7% level, “I expect a hawkish stance from the policy.”
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First Published: Sun, Apr 27 2008. 12 24 PM IST