<b>RBI Rate Hike:</b> Uncertainties cleared:Yes Bk MD

Commenting on the 25 basis points hike in repo and reverse repo rates by the Reserve Bank in the Credit Policy Review today, Rana Kapoor, MD & CEO, YES Bank, said: "In view of the continued demand pressures building up in the economy, we fully appreciate Governor Reddy's decision to raise the reverse repo rate by 25 bps to 6%. While the RBI has aptly acknowledged that in Q1 FY07, inflation has primarily been driven up by supply-side factors, it has also cautioned against high credit and money supply growth exerting upward
pressure on prices, especially when impacted by oil shocks."

"As per the governor's assessment of the economy, another year of impressive GDP growth is on the anvil. In particular, investment activity remains strong in an environment of rising capital expenditures of corporates, with investment and capital formation remaining high. This is reflected in the impressive growth in bank credit, which is currently at 32.0 per cent y-o-y, despite last year's high base. In this context, the governor continues to reinforce the need to focus on credit quality in order to maintain financial stability," Kapoor said.

"Global cues also continue to point towards greater tightening in G3 economies. We believe that the market might just be reading too much softness into Chairman Bernanke's statement, presented last week. While the US might be approaching the end of its tightening campaign, nowhere in Bernanke's Testimony has he indicated a pause in the near-term. He has been
emphasising that further rate decisions would be essentially data-dependent. There is a large possibility that data might emerge stronger than expected, leading the Fed to act accordingly. Evidence from the data so far is very clear: Q2 is estimated to be one of the highest inflation quarters since 1991, whilst GDP growth remains firm," Kapoor said.

"To conclude, with the announcement of a rate hike, the RBI Governor has done well in removing uncertainty from the markets, whilst at the same time curtailing inflationary expectations and ensuring a steady economic pathway to sustained growth," Kapoor said.