RBI steps in to rein inflation,to push up interest rates later

Mumbai, Apr 20 (PTI) The Reserve Bank of India Tuesday
hiked key short term rates and banks' cash reserve requirement
by 25 basis points each to rein in inflation, but lenders said
interest rates on commercial and personal loans won't go up
immediately.
But Tuesday's hike -- the second policy action in a month
-- will lead to gradual rise in interest rates as banks will
see Rs 12,500 crore squeezed out from their system following
the 25 basis points hike in CRR, lenders said.
Besides, the apex bank hiked repo and reverse repo (the
rates at which it lends to and borrows short-term funds from
banks) by 25 basis points each to 5.25 per cent and 3.75 per
cent, respectively. These rates were hiked by an identical
margin on March 19.
While India's Finance Minister Pranab Mukherjee said:
"These policies should have a gentle impact in tightening
money in the economy and should dampen further inflationary
pressures", RBI committed itself to more policy steps to
control inflation without choking the economy.
The central bank said it expects the economy to grow by 8
per cent in FY'11 -- lower than the government's 8.5 per cent
projection -- and inflation to ease to 5.5 per cent by this
fiscal end.
Wholesale prices-based inflation stood at 9.90 per cent
in March this year, fuelled by high food prices.
The Reserve Bank also did not rule out further tightening
of monetary policy before the next review, slated for July 27,
saying this depends on monsoon, crude prices and demand
pressures.
"I will not rule out mid-cycle action because we do not
know how the situation will evolve," RBI Governor D Subbarao
told reporters after the annual policy for 2010-11 was
unveiled.
While bankers ruled out immediate hike in lending rates,
they said the cost of credit may go up as the year progresses.
ICICI Bank's Chief Chanda Kochhar said: "During the year,
I do see the lending rates going up but I don't see any
immediate impact on rates as of now."
The country's largest lender SBI's Chairman O P Bhatt
said: "Whatever has been done (in the policy) has reduced the
supply. So, definitely there is an upward bias in rates. As
(credit) demand increase, there will be a demand-supply gap,
then there is a possibility of interest rates going up."
Industry chamber FICCI secretary general Amit Mitra said
the RBI move would put pressure on interest rates, but lending
rates would not go up immediately.
Planning Commission Deputy Chairman Montek Singh
Ahluwalia said: "I don't think it (RBI's monetary policy)
would have any adverse affect on (GDP) growth rate."
Even after the hike in key short term rates, these rates
are still in negative, if inflation is adjusted for, Subbarao
said. MORE PTI TEAM
RDM


The information contained in this electronic message and any attachments to this
message are intended for the exclusive
use of the addressee(s) and may contain proprietary, confidential or privileged
information. If you are not the intended
recipient, you should not disseminate, distribute or copy this e-mail. Please
notify the sender immediately and destroy
all copies of this message and any attachments contained in it.