RBI may raise key policy rates in Nov 2 policy review: Bankers | india | Hindustan Times
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RBI may raise key policy rates in Nov 2 policy review: Bankers

Faced with rising inflation, the Reserve Bank is likely to increase key policy rates by at least 25 basis points in its mid-term review of the monetary policy to be unveiled on Tuesday.

india Updated: Oct 31, 2010 11:46 IST

Faced with rising inflation, the Reserve Bank is likely to increase key policy rates by at least 25 basis points in its mid-term review of the monetary policy to be unveiled on Tuesday.

"It could be (tightening of key policy rates) and could not be. If it is there, I don't think it would not be more than 25 basis points. It just a possibility," said SBI Chairman O P Bhatt.

The macro economic condition is very complex at the moment, he said, adding that policy action by RBI is a difficult question to answer at this point of time.

Overall inflation for the month ended September rose to 8.62 per cent, from 8.5 per cent in the previous month. However, food inflation eased a bit to 13.7 per cent for the week ended October 16, compared to 15.5 in the previous week.

Stubbornly-high headline inflation rate may prompt RBI to tighten money supply by raising both short-term lending (repo) and borrowing (reverse repo) rate on November 2.

Given the inflationary pressure on the economy, the central bank may further tighten money supply and there could be 25 basis points increase in policy rates, said Punjab National Bank Executive Director Nagesh Pydah.

According to ICICI Bank Managing Director Chanda Kochhar, "RBI has been managing this dual goal in that sense very well -- that is, making sure that growth takes place or enabling conditions for growth take place and on the other hand, on managing inflation and inflation expectations."

Next six months of the current financial year are going to be a period of tight liquidity. So there would be upward bias on the interest rates, she said.

Last week, Reserve Bank of India Deputy Governor Subir Gokarn hinted at another round of monetary policy tightening asserting that it is a challenge to keep inflation in check.

"Persistent price increases in commodities for which there are less effective substitutes, with other things remaining equal, will raise the potential rate of inflation over a period of time. India's challenge is to keep inflation under check," Gokarn had said.

Even Finance Minister Pranab Mukherjee had said, "I will try to bring it (inflation) down through whatever mechanism we have... It would be ideal if we have 4-5 per cent, but may be difficult. But I do feel that the annualised inflation rate would be around 6 per cent."

However, some bankers feel that the RBI should keep the rates unchanged so that credit growth is not hurt.

"We hope RBI to maintain status quo on rates, as it can hurt loan demand during the festive season," said Central Bank of India Chairman and Managing Director S Sridhar.