Room to finetune rates
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| The reverse repo rate hike was not a surprise. Demand for credit has been much more than the deposit growth. Hence it is demand and supply issue.
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| The tight liquidity conditions would be a short-term phenomenon as corporates wish to mop up resources before end of the financial year.
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| After March, the government spending would improve the resource supply. Much of corporate lending is happening at below PLRs and there is room to finetune rates.
MBN Rao, Chairman, Canara Bank Credit surge to continue
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| The repo and reverse repo rate hike was on the cards given the concern on inflation and current account deficit. While a CRR cut was also expected, we are not entirely surprised because RBI is still trying to ascertain the genuineness and quality of credit growth.
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| Going ahead, we should expect higher loan and deposit rates, and, loans to still outpace deposit growth. If credit growth is indeed ascertained to be genuine, then liquidity easing measures through a combination of OMO or CRR cuts is imperative.
Sanjay Nayar, CEO, Citigroup Impact on home loans
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| The hike in reverse repo rate by 25 basis points is a recognition of existing conditions in the market, where repo rates were already ruling in excess of 7 per cent. The direction for the interest rates is clear.
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| They would firm up at the short-end by about 25-50 basis points, especially for corporate and big-ticket borrowers. The effect of reverse repo rate hike would be felt largely in the home loan market. The housing finance companies are likely to review thir lending rates in the near future.
Cherian Varghese, CMD, Union Bank Case for a further hike
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| By tightening policy rates, the RBI has responded to economic fundamentals -- the risk of a pick up in inflationary pressures had clearly intensified in recent months, even though headline inflation remained comfortable.
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| The central bank has correctly focused on the many monetary and non-monetary economic indicators that indicate a booming economy and, along with the incomplete pass-through of international oil prices, suggest continued pressure on inflation. The RBI is likely to keep a cautious outlook on inflation and may choose to raise rates again in 2006.
Dominic Price, MD, JP Morgan Chase Unexpected RBI move
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| The rate hike is a mild surprise. With stable macroeconomic fundamentals, benign inflation and tight liquidity conditions, one would have expected a status quo on the RBI's part.
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| The central bank, however, has laid greater emphasis on future price stability as it sees upward pressures on inflation. The rate hike would induce upward adjustment in banks' cost of funds. That is likely to induce some increase in their effective lending rates, which are already treading upwards.
Romesh Sobti, Executive VP, ABN AMRO |
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