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The Reserve Bank of India (RBI) is set to raise the benchmark repurchase rate and cash reserve ratio at its meeting on Tuesday in a move to defend the rupee, said State Bank of India chairman Pratip Chaudhuri.
RBI had increased bank rate and marginal standing facility rate to 10.25 per cent from 8.25 per cent on July 15 and last week capped its funding support to lenders and raised their daily cash reserve requirements after the rupee dropped to a record low of 61.21 a dollar on July 8. It had kept the benchmark repo rate unchanged at 7.25 per cent, while the CRR was at four per cent.
"As of now, the effective repo rate in India is 10.25 per cent and CRR is 4.25 per cent," Chaudhuri said in an interview to Bloomberg. "What is de facto now may become de jure."
Chaudhuri's views contradicts 31 of 32 analysts in a Bloomberg News survey who predicted no change to the benchmark rate, while 29 of 30 expects the CRR to remain unchanged at four per cent. The decision is due at 11 am on Tueday.
Global funds have cut holdings of Indian debt by $8.9 billion since May 22, when the US Federal Reserve signaled it could curb asset purchases that have boosted demand for emerging-market assets. The Fed will start trimming bond purchases in September, according to a Bloomberg survey of economists.
The International Monetary Fund said last week exiting from the quantitative easing programme could spur excessive interest-rate volatility and have "adverse global implications." Fed Chairman Ben S Bernanke had said it's "way too early to make any judgment" as to whether policy makers would start tapering in September.
RBI Governor Duvvuri Subbarao had cut the repo rate three times this year.
