The possibility of an interest rate hike gathered momentum with the Reserve Bank today stating that it is keeping its options open to take monetary actions to rein in the runaway inflation, even before the quarterly review next month.
"High inflation is a concern. Inflation is always a concern and will remain a concern (for RBI). At some stage monetary policy has to address the issue," RBI deputy governor KC Chakrabarty told reporters on the sidelines of a function in the Capital today.
If the Governor comes to the conclusion that if there is a need now, it will be done, he said, adding, "the monetary action can happen any time," Chakrabarty.
When asked whether the monetary action can be taken before the next policy review scheduled for July 27, the deputy governor said, "absolutely".
Chakrabarty further said inflation is a bigger concern for the country now tha the impact of the lingering debt crisis in Europe.
Meanwhile, Finance Minister Pranab Mukherjee also said the Reserve Bank will consider monetary policy measures to tame inflation, which as crossed double-digits.
"So far as the monetary part is concerned, the Reserve Bank will look into it, will consider it," Mukherjee told reporters on the sidelines of a tax conference here.
"Even in the last policy announcement, 25 basis points were increased...So, as and when the Reserve Bank feels appropriate steps are required to be taken to control the inflation, it will do so," Mukherjee said.
Bankers also echoed similar views saying interest rates are under pressure, as inflation is high and liquidity remains tight due to payment towards 3G abd broadband wireless access spectrum and advance tax outgo.
"Liquidity is very tight now as it is the last day for the payment of advance tax. Liquidity in the last two days has been absorbed because of broadband spectrum payment and advance tax," Punjab National Bank chairman KR Kamath said.
He, however, added the money that goes to the government comes back into the system in two-three weeks. "It (money flow into the system) is expected by the end of the month. Liquidity should come back by then," he added.
Union Bank of India chairman MV Nair also said interest rates are under pressure. "Naturally, when inflation is high, bias would be upwards,' he said.
The country's largest lender SBI had said yesterday that liquidity is tight and interest rates can go up by 25 basis points in the coming months.
Telecom operators paid over Rs 67,000 crore to the government for 3G spectrum licences. Another Rs 38,000 will go out of the system for payment towards spectrum for broadband wirless access services by June 22.
Tax officials today reported that corporates like LIC, Hindalco, and HDFC paid higher advance taxes for the first quarter of this fiscal.
Even as liquidity tightened, RBI has to take into account inflation which touched a 19-month high of 10.16 per cent in May. The apex bank will review its quarterly monetary policy on July 27, but actions on monetary front could come even before that.
Analysts expect RBI to hike short-term lending rates, without touching cash reserve ratio, which is a requirement for banks to keep certain portion of deposits in cash with the central bank, keeping tight liquidity conditions in mind. PTI
The Reserve Bank has raised rates twice this year to check food inflation from spreading to manufactured goods, but with inflation continuing to rise, economists expect another round of policy action.
The finance minister attributed rising prices to shortage of certain commodities, besides the impact of base effect.
"To tackle the problem, whatever is required from the supply side, we have already taken those steps. Commodities is in some short supply (and) to meet the balance, we have allowed duty free imports," he added.
