Considering the sustained capital inflows and unprecedented surge in the rupee value, the Reserve Bank of India (RBI) may moot another hike in cash reserve ratios (CRR) which, in turn, may be passed on to the customer kitty.
Sustained capital inflows, where liquidity and money supply concerns persist heavily, and uprecedented surge seen on the rupee value, which has gained more than 9 per cent in last quarter, have been fingered out as a possible reason for another CRR hike, Industry experts said.
"The RBI could be testing market positioning by letting liquidity ease ahead of the expected acceleration in Forex flows to participate in Initial Public Offerings (IPOs) later in June and early July. We expect bond-swap spread convergence and long positions in upto 7 year bonds to perform," said an analyst with Merrill Lynch.
Forex had witnessed enormous capital inflows in the past quarter taking rupee in to a fresh nine year peak of 40.28 in last week mounting pressure on Export-oriented industries like Textile and IT, who tasted losses owing to a weak dollar and curresponding rupee surge.
"Capital inflows are in full flow for the past few weeks and is likely to remain in high spirits in the ensuing sessions. Rupee is expected to clinch on the heights in weeks ahead," said Indrajith Sen Guptha, chief forex dealer of Canara Bank to UNI.
With a view to suck out the excess liquidity, the apex bank had hiked the CRR rates by 50 basis points to 6.5 per cent on March 30, while repo rate was hiked by 25 bps to 7.75 per cent.
CRR, the mandatory cash reserve that banks should keep with the central bank, claims a proportional impact on the bank loan rates.
"As a further measurer to absorb excess liquidity, RBI had introduced a couple of tightening measurers like stepping up of Market Stabilisation Scheme (MSS) issuance as, Rs 50 billion 2009 paper on June 6 and an additional Rs 25 billion of treasury bill MSS issuance in addition to the regular weekly treasury bill MSS issuance of Rs 25 billion," showed a data releasd by Merrill Lynch.
Apart from this, scheduled auctions for Rs 60 billion 7.49 per cent 2017 and Rs 30 billion 8.33 per cent 2036 were preponed to June 5 instead of the usual Fridays.
However, the impact of the tightening measurers is likley to become visible in a later stage only as banks have over-covered their CRR requirements, added sources.