RBI may hike CRR by fiscal end: D&B

The Reserve Bank of India (RBI) may hike cash reserve ratio (CRR) by 50 basis points by end-March to mop-up excess liquidity from the system, research firm Dun & Bradstreet (D&B) said.

CRR is the amount of funds that banks have to park with the RBI. At present, CRR stands at 5 per cent.

D&B said it is not hopeful on repo and reverse repo rates hike in the near future, but "expects that RBI would increase the CRR to absorb the excess liquidity in the system and contain any demand side pressures on the inflation front".

"Given the underlying inflationary pressures, Dun & Bradstreet expects that RBI may increase the CRR by 50 basis points by the end of the current fiscal. This may happen in two phases--a 25 basis points hike by end of December 2009 and another 25 basis points by end of March 2010," D&B India Chief Operating Officer Kaushal Sampat told PTI here.

However, these changes in CRR may not happen in the RBI's monetary policy review due on October 27, D&B said.

India's wholesale price index (WPI) inflation for end-September is likely to average between 1.3 per cent and 1.5 per cent, it said.

"Given the high prices of primary food articles, waning base effect and an expected decline in agriculture production, the WPI inflation may average between 1.3 per cent and 1.5 per cent during September 2009," D&B said.

Inflation rose to 0.92 per cent for the week ended October 3 from 0.70 per cent in the previous week even as prices of non-processed food items declined.

D&B expects that inflation management would be at the forefront of RBI's monetary policy during the next few months, given the inflationary expectations on one hand and improvement in economic activity on other.

On bank credit, it said a year-on-year growth was likely to remain sluggish because of a high base effect in the previous year.

"However, the incremental bank credit is likely to improve going forward given the expected increase in credit demand during the beginning of the peak season and the gradual reduction in risk aversion on the part of banks," D&B said.