RBI may hike rates by 25 bps; loan rates may rise

Ahead of the Reserve Bank's policy review on Tuesday, bankers anticipate a 0.25% hike in short term interest rates by the RBI as pressure on interest rates in both domestic and global markets continue.

However, they are of the view that the central bank is unlikely to make any changes in Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR) and Bak Rate.

"A robust domestic and improving global economic outlook, together with a build-up in inflationary pressures call for a reverse repo rate hike of 25 bps (0.25%) to 6.0%," Rana Kapoor, chairman of Yes Bank, said.

The 0.25% hike in repo rate to 7% implied the 100 bps gap between RBI's overnight lending (repo) and borrowing (reverse repo) rate may be retained, he said.

RBI is likely to raise repo and reverse repo rates, Oriental Bank of Commerce chairman K N Prithviraj said, adding interest rates were hardening as deposit growth is low but loan growth was high.

"With the cost of funds increasing, the margins of the banks are under pressure," he said.

OBC plans to review lending rates after RBI's July 25 policy review. Chairmen of Canara Bank, Indian Bank, Bank of Maharahtra and Vijaya Bank also agreed that market expects 0.25% increase in repo and reverse repo rates by the RBI.

Finance Minister P Chidambaram had said if interest rates rose then it would be due to inflationary expectations.

However, bankers do not see any hike in CRR and SLR limit as excess liquidity will be moderate after credit pick up in the coming months as economy is growing at a higher rate.