RBI hikes rates, loan rates may not rise

Tuesday, April 20, 2010
The RBI headquarters in Mumbai

Image via Wikipedia

Aiming to tackle near double-digit inflation, the Reserve Bank hiked key lending and borrowing rates, as also the mandatory cash reserves banks park with it, by 0.25 per cent.

But lenders said the move would not lead to any immediate increase in commercial and personal loan rates.

The RBI increased repo and reverse repo, the rates at which it lends to and borrows short-term money from banks, by 25 basis points.

It also hiked CRR, the portion of money that commercial banks deposit with the central bank, by an identical percentage -- a move that would suck out Rs 12,500 crore from the system. The increase would come into effect on April 24.

Commenting on RBI's annual monetary policy for 2010-11, Finance Minister Pranab Mukherjee said, these measures "should have a gentle impact on tightening money in the economy and should dampen further inflationary pressure."

While the RBI sees inflation easing to 5.5 per cent by the end of the current fiscal from 9.9 per cent in March, Mukherjee asserted that it would be lower than RBI's estimate.

Top executives of banks, including Oriental Bank of India and IDBI Bank, said that the RBI move would not translate into any immediate hike in interest rates.

Industry chamber FICCI secretary general Amit Mitra said the RBI move would put pressure on interest rates, but lending rates would not go up immediately.

"...the 25 basis points hike in repo rate would certainly put pressure on interest rates. However, given the situation, we expect lending rate hike should not be imminent," Mitra said.

The hike in rates is happening for the second consecutive month. It had last month raised repo and reverse repo rates by 25 basis points, as part of roll-back of its easy money policy unveiled in the wake of the global financial crisis in 2008.

Hike in repo and reverse repo, the rates at which RBI lends and borrows from banks, to 5.25 and 3.75 per cent respectively, will raise the cost of fund for the lenders and would temper the demand for loans and, in turn, consumer spending.

Unveiling the policy, Reserve Bank Governor D Subbarao said, "RBI will continue to monitor macro economic conditions, particularly the price situation, closely and take further action as warranted."

The three major factors that could have a bearing on inflation are uncertain monsoon, volatile prices of crude in the international market and demand pressures.

As regards the growth prospects, Subbarao said, the economy is likely to grow by 8 per cent (with an upside bias).

RBI's growth projection, however, is lower than the Finance Ministry's estimate of 8.5 per cent for 2010-11.

Labels:

Post a Comment

post your comments here please

There was an error in this gadget
Related Posts Plugin for WordPress, Blogger...
There was an error in this gadget

Popular Posts

Labels

auto (24) blogger (1) bollywood (40) Business (50) education (20) google (57) health (27) hot (74) indianews (108) indiantv (34) internet (2) jobs (38) lifestyle (50) results (43) showbiz (253) tech (211) videos (70) worldnews (77)