RBI Likely to Maintain Status Quo in Its Policy Review

New Delhi
RBI Likely to Maintain Status Quo in Its Policy Review
outlookindia.com
-0001-11-30T00:00:00+0553
Overlooking the demand of India Inc to lower interest rates, the Reserve Bank in its policy review may refrain from cutting policy rate as the inflation of manufactured goods is still high.

"I don't see moderation in the interest rate (in the coming policy). CRR (Cash Reserve Ratio) cut I am not hopeful," SBI Chairman Pratip Chaudhuri said.

"I think there would be strong measures to indicate that RBI wants inflation to be stamped out totally," he said.

Headline inflation fell to a two-year low of 7.47 per cent in December, 2011. Food inflation entered the negative zone in mid-December and stood at (-)0.42 per cent as of January 7, as per the latest numbers released by the government.

RBI will unveil its third quarterly review of monetary policy on January 24.

Industry has been demanding cut in interest rate to prop up economy. In the second quarter (July-September) of the current fiscal, the economy recorded a growth of 6.9 per cent, the lowest level in over two years.

In its last review in December, the RBI pressed the pause button on its monetary tightening measures and said it might go for rate cuts in the future depending on moderation in inflation.

"From this point on, monetary policy actions are likely to reverse the cycle, responding to the risks to growth," RBI Governor Subbarao had said in the last policy review.

According to Indian Overseas Bank Chairman and Managing Director M Narendra, the central bank is likely to keep policy rates unchanged for a while.

There is a little possibility of changing the CRR in the coming policy review, Narendra added.

Presently, CRR is 6 per cent. CRR is that portion of deposits which commercial banks keep with the central bank.

The central bank had hiked interest rates by 375 basis points between March 2010 and October 2011 to deal with the persistently high inflation, including rising prices of food items.

Canara Bank Chairman and Managing Director S Raman said there is some possibility of the RBI slashing CRR by 25 basis points to infuse liquidity in the light of moderation in industrial activity.

Government has already revised downwards the GDP growth forecast for the current fiscal. GDP is expected to clock a growth rate of about 7 per cent against 9 per cent projected earlier.

Kotak Mahindra Bank Managing Director Uday Kotak said: "Domestic liquidity is tight as you can see at numbers...At the most the market can hope something on CRR to correct the domestic liquidity situation".

Banks are drawing over Rs 1,00,000 crore from the repo window everyday even though RBI is carrying on Open Market Operation on weekly basis to ease liquidity pressure.
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