Industrial growth is slowing and so is inflation. In circumstances like these should the RBI pause or does it need to raise rates yet again on March 17? CNBC-TV18's Gopika Gopakumar and Vidhi Godiawalla find out what bankers and economists are expecting.
RBI Governor D Subbarao is clearly in a dilemma over inflation management and growth. But Inflation control is expected to remain the central bank's focus in its mid-quarter review on March 17. He said, “For inflation management, we have to raise policy interest rates. For protecting, promoting and preserving recovery, we need to keep interest rates low.”
A CNBC-TV18 poll of bankers and economists shows that 70% of those polled expect the RBI to hike the repo rate by 25 bps to 6.75%. 65% expect a 25 bps hike in the reverse repo rate to 5.75%.
Samiran Chakrabarty, Head of Research at Standard Chartered, said, “RBI till now has clearly communicated the stance that they want to balance between growth and inflation and that's why they want to take a calibrated stance that they want to raise rates. From that perspective 25 bps hike seems to be on the cards.”
The street is more or less convinced that inflation for March-end will come in higher than RBI has forecasted, which is 7%. 80% of the respondents expect March-end inflation to be above 7%; while only 20% see it at 7% or lower.
With the liquidity situation stabilizing, majority believe the RBI will not extend the facility of extra borrowing that banks can do up to 1% of SLR beyond April 8.
So how will actual lending and deposit rates move after the policy?
Majority believe banks will not hike lending or deposit rates immediately even if the RBI moves on policy rates.
Ramnath Pradeep, CMD of Corporation Bank, said “Incase there is an increase in the repo rate and reverse repo rate by may be 25 bps, I think to pass on to the borrowing will be difficult as peak level of the rate has reached on deposit side, so, now to pass on this hike in rate of interest, there could be a question of sustainability.”
A CNBC-TV18 poll of bankers and economists shows that 70% of those polled expect the RBI to hike the repo rate by 25 bps to 6.75%. 65% expect a 25 bps hike in the reverse repo rate to 5.75%.
Samiran Chakrabarty, Head of Research at Standard Chartered, said, “RBI till now has clearly communicated the stance that they want to balance between growth and inflation and that's why they want to take a calibrated stance that they want to raise rates. From that perspective 25 bps hike seems to be on the cards.”
The street is more or less convinced that inflation for March-end will come in higher than RBI has forecasted, which is 7%. 80% of the respondents expect March-end inflation to be above 7%; while only 20% see it at 7% or lower.
With the liquidity situation stabilizing, majority believe the RBI will not extend the facility of extra borrowing that banks can do up to 1% of SLR beyond April 8.
So how will actual lending and deposit rates move after the policy?
Majority believe banks will not hike lending or deposit rates immediately even if the RBI moves on policy rates.
Ramnath Pradeep, CMD of Corporation Bank, said “Incase there is an increase in the repo rate and reverse repo rate by may be 25 bps, I think to pass on to the borrowing will be difficult as peak level of the rate has reached on deposit side, so, now to pass on this hike in rate of interest, there could be a question of sustainability.”
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