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RBI likely to raise key rates: E&Y

Ahead of the Reserve Bank's quarterly monetary policy, global consultancy firm Ernst & Young on Tuesday said the central bank is likely to signal interest rate hikes to suck out liquidity from the market and check prices from spiraling further.

business Updated: Jan 26, 2010 12:10 IST

Ahead of the Reserve Bank's quarterly monetary policy, global consultancy firm Ernst & Young on Tuesday 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.