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Policy watch: rates unlikely to change

india Updated: Dec 14, 2010 22:58 IST
HT Correspondent
HT Correspondent
Hindustan Times
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Most of the corporate and financial institutions expect cash reserve ratio (CRR), repo rate and reverse repo rate to be unchanged in the sixth weekly review of monetary policy on Thursday by the Reserve Bank of India (RBI), said a Royal Bank of Scotland (RBS) clients’ survey.

“Majority of the respondents do not expect any change in the CRR, repo rate and reverse repo rate,” said Ramit Bhasin, head of markets, global banking and markets, RBS India.

In the survey, 66% of the respondents expect no change in the CRR (the portion of deposits that commercial banks need to keep with RBI), 71% expect no change in repo rate (the rate at which banks borrow from RBI), while 75% expect reverse repo rate (the rate at which the RBI borrows from the banks) to be unchanged.

Currently CRR is at 6%, repo rate 6.25% and reverse repo rate is 5.25%.

The survey included 112 respondents, of which 80% were corporate and rest financial institutions. Another research report released by Standard Chartered on Tuesday said that RBI is expected to leave the interest rates untouched.

Liquidity crunch in the system and easing inflation will make RBI governor to maintain status quo in the rates, said Bhasin.

Inflation slowed to an 11-month low as the benchmark wholesale-price index rose to 7.48% in November from a year earlier after an 8.58% jump in October. Lower deposit growth in the current quarter and advance tax payment by the companies, which is due this week, has created liquidity crunch for the banks. Advance tax payment is expected to suck around R50,000 crore from the system.

“Going forward, respondents are equally divided among those expecting a rate hike and those expecting no change by March 2011,” said Bhasin.

As per the survey, 54% of the respondents expect no change in CRR, while 39% expect a hike of 25 bps (basis points) in repo rate, and 38% expect a hike of 25 bps the reverse repo rate by March 2011. Around 18% expect RBI to cut CRR by March 2011.