RBI likely to lift CRR by 1.5% next year: Credit Suisse

RBI likely to lift CRR by 1.5% next year: Credit Suisse

Mumbai: An expected northward movement in growth and inflation might prompt the Reserve Bank to hike repo, reverse repo rates by 1.25% and the cash reserve ratio by 1.5% in 2010, a report today said.

“For 2010, we are penciling in a 125 basis points increase in the reverse repo and repo rates and an approximate 150 basis points hike in the CRR," Credit Suisse said in its report on Friday.

The apex bank may take into account the improved prospects of growth, early signs of bank credit growth and the likely surge in the WPI-inflation to begin hiking repo rates in end-March or April 2010, it said.

The report said the central bank may allow liquidity to remain in excess in the system for sometime, by allowing a part of this to go ‘naturally´ into the economy in the form of bank lending.

“Hence, we think the RBI is likely to keep the CRR on hold in December and is likely to raise it by 50 basis points only at the end-January 2010 meeting or before end-March 2010," it said.

On the back of a faster growth in industrial production, India’s GDP growth in FY 10 could be around 6.6% year-on-year as compared to the earlier projection of 6.2%, the report said.

In 2010-11, the report has projected a GDP growth of around 7.9% and said the growth may pick up ‘meaningfully´ beyond 2010.

It also said the wholesale-price based inflation in the Jan-March, 2010 may go upto 7.5% from around 1.3% presently.

Also, a cyclical pick-up in tax revenues and a temporary restrain in expenditure are likely to lower the general government deficit to 9% of GDP in 2010 but the deficit financing could remain challenging, the report said.