Zooming inflation, a build-up of inflationary pressures and cues from global markets could impel the Reserve Bank of India (RBI) to further tighten its monetary policy stance by hiking the cash reserve ratio (CRR) and policy rates, bankers said.
The apex bank's third-quarter quarter review of its monetary policy, scheduled for Friday, is therefore being keenly watched as any hike in the CRR or policy rates will push up lending rates in the banking system making home, auto and retail advances dearer to the common man, bankers said.
"Signals of monetary policy tightening in the US and China may add to pressure on the RBI to hike rates. Also, inflationary pressures are high. One can expect a 0.5 per cent hike in the CRR," IDBI Bank Executive Director R K Bansal told PTI.
Bansal said that a marginal hike in the repo and reverse repo rates (at which RBI lends and borrows) also cannot be ruled out as the apex bank may want to signal an upward movement in interest rates going forward.
Skyrocketing prices of essential commodities and food items pushed up consumer price inflation to 16.81 per cent for the week ended January 9. WPI-based inflation expanded to a year's high of 7.31 per cent in December.
UCO Bank Chairman and Managing Director S K Goel said that a hike in CRR--the amount which banks have to park with the central bank--could be as high as 1-2 per cent and may be effected in multiple tranches.
"At this point, RBI is focusing only on inflation. The may come with a 1-2 per cent CRR increase. As far as policy rates are concerned, there may be a slight increase," he said.
More From This Section
Taking a cue from the RBI, banks could jack-up their lending rates in the near future, Goel said, adding, however, that this would depend upon the liquidity conditions of individual banks.
"Interest rates are always linked to the liquidity in the system. Once the apex bank absorbs the liquidity, bank lending rates tend to move up," Goel said.
With the economy on the recovery path, credit demand in the system has started picking up and is likely to improve significantly in the next few months, he said.
State Bank of India Chairman O P Bhatt, however, put forward a different view when he said recently that this would not be the right time for a CRR hike as credit growth is likely to pick-up in coming months.
Regardless of the apex bank's monetary policy actions, interest rates in the system are unlikely to go up in the next six-months, Bhatt had said.