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| RBI likely to raise key rates: E&Y |
| Press Trust of India / New Delhi Jan 26, 2010, 12:32 IST |
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Ahead of the Reserve Bank's quarterly monetary policy, global consultancy firm Ernst & Young today said the central bank is likely to signal interest rate hikes to suck out liquidity from the market and check prices from spiraling further.
It further said the Reserve Bank may also raise the amount banks need to park with the apex bank (CRR) by up to 50 basis points.
"The Reserve Bank could raise the short-term borrowing (reverse repo) rate by 25 basis points. The central bank is likely to hike cash reverse ratio by up to 50 basis points," Ernst & Young partner & national director for financial services Ashvin Parekh said.
The Reserve Bank will announce the third quarter review of the monetary policy on January 29 amid speculations that it may signal an interest hike to tighten money supply and check rising prices.
Parekh further said there is inflationary pressure and the wholesale price inflation is likely to reach 8.5 per cent by the end of the current fiscal.
The wholesale price-based inflation rose to 7.31 per cent in December compared to 4.78 per cent in the previous month. Besides, food inflation is also way above the comfort zone at over 16 per cent for the third week of January.
The RBI in its monetary policy review in October has revised the overall inflation forecast to 6.5 per cent by March-end from 5 per cent earlier.
Following the global financial meltdown that started off in the US in September 2008, the Reserve Bank took a slew of measures to make funds available to the industry and to help revive a sagging economy.
The central bank had reduced the short-term lending (repo) rate by 425 basis points to 4.75 per cent and the short-term borrowing (reverse repo) rate by 275 basis points to 3.25 per cent since the crisis engulfed the global economies. The RBI also reduced the cash reverse ratio by 400 basis points to 5 per cent.
With the economy showing strong signs of recovery and inflationary pressures becoming more and more evident, the RBI in its October policy initiated the first phase of exit of its easy monetary policy by raising the statutory liquidity ratio (SLR)--funds that banks invest in government bonds--by one percentage point to 25 per cent.
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