'RBI may up rates, GDP growth likely at 7.4 pc'
Standard Chartered Bank says that the RBI is likely to hike the repo and reverse repo rates by 25 basis points and the GDP growth is expected to slow down to 7.4 per cent from 9 per cent in 2007-08.Updated: Jun 08, 2008 16:55 IST
A likely double digit inflation might force the Reserve Bank to tighten money supply further, even as the economic growth is expected to slow down to 7.4 per cent this fiscal from nine per cent in 2007-08, Standard Chartered Bank says.
Taking into account unrelenting inflationary pressure, StanChart in its latest research report has said the central bank is likely to hike the repo and reverse repo rates (short term rates through which RBI lends and borrows money to/from banks in exchange of government bonds) by 25 basis points in its monetary policy review next month.
In addition, the RBI is expected to ask banks to keep more cash with the central bank by hiking the cash reserve ratio, it said.
"We expect RBI to hike both the repo rate and reverse repo rate by 25 bps (basis points) in their July, 2008 meeting, apart from the further 75 bps hike in CRR till March'09," Shankar Narayanaswamy, senior analyst with StanChart said in the report.
The CRR currently stands at 8.25 per cent, repo rate at 7.75 per cent, while reverse repo is six per cent.
The government has unleashed a slew of fiscal and administrative measures to tame inflation, which has risen to 45-month high of 8.24 per cent, and RBI hiked CRR by 75 basis points since April 17 this year.
According to the report, the move to keep policy rates on hold is to strike a balance between the initiatives to bring down inflation and to ensure that the country's business confidence is not negatively impacted.
The report also projected the economy to grow at slower rate of 7.4 per cent in the current fiscal, down from nine per cent during 2007-08.