Interest rates may go up, but liquidity comfortable' | india | Hindustan Times
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Interest rates may go up, but liquidity comfortable'

Bankers indicate that the 25 basis point hike in the percentage of cash that banks must hold in reserve was hardly enough to soak up excess liquidity.

india Updated: Apr 29, 2008 18:28 IST

Bankers on Tuesday indicated that the 25 basis point hike in the percentage of cash that banks must hold in reserve was hardly enough to soak up excess liquidity, but some banks may still hike interest rates.

"Ultimately interest rates are subject to demand and supply. Liquidity is good... Liquidity may come down marginally (but) I don't think liquidity is going to just fall off. I would wait and watch," said KV Kamath, CEO and MD of the country's second largest lender ICICI Bank.

He was reacting to RBI's decision to increase Cash Reserve Ratio by 0.25 per cent to suck nearly Rs 9,000 crore surplus cash from the system, which would in turn temper demand for loans and help ease inflation.

"Due to the hike, the profit and loss accounts of banks would take a hit. We can shoulder this much of impact when it comes to the national interest," Kamath said.

HDFC Bank Head (Trading) Ashish Parthasarthy, however, said that RBI's decision to leave repo and reverse repo (the short-term inter-bank lending and borrowing rates) unchanged was indicative "of the view that interest rates are at a reasonably high level at present."

HSBC India CEO Naina Lal Kidwai said, "It has been a very balanced policy and RBI has done a good balancing act between growth and inflation... (CRR) hike was expected".

On whether interest rates would be hiked by banks, she said: "Some banks might pass it on to the customers. HSBC would decide on its interest rates in about two-weeks."

Canara Bank CMD MBN Rao said, "CRR hike of 0.25 per cent will suck out only a small amount from the system... The liquidity in the banking system is comfortable. Canara Bank's ALCO will meet in about a week's time to decide on its interest rates".