Experts differ on rate hike at April 29 RBI meet

Burdened by rising inflation, the RBI has hiked the Cash Reserve Ratio by 50 basis points to 8% in two stages. The first 25 basis point CRR hike will be effective April 26. The second 25 basis point hike will take effect starting the May 10. This hike will drain Rs 18,500 crore from the system. This move follows liquidity management measures already taken by RBI after inflation surged past its threshold level of 5% in recent weeks. So far, nearly Rs 20,000 crore has been sucked out of the system through new bond auctions via the MSS window.

So, what do experts make of this RBI move?

Industry Expert AK Purwar said RBI has signalled to markets that if required they would take further steps to take care of inflation by sacrificing growth. He feels RBI might not hike interest rates as the differentials between the global interest rates and Indian rates are quite high and is already impacting the capital expenditure plans of various corporates.

SA Bhatt, CMD, Indian Overseas Bank, expects RBI to raise the repo rate by 25 bps to curb inflation and give some kind of indication to the market.   

Hitendra Dave, Co-Head - Global Markets, HSBC India, doesn’t expect RBI to hike rates at its April 29 meet. He feels money supply and the kind of liquidity that is allowed to stay in the system will be severely under the RBI scanner.

Naina Lal Kidwai, CEO, HSBC Bank, expects banks to increase interest rates on account of the CRR hike. She also expects the repo rate to go up in the Credit Policy. HSBC will decide on the interest rates after the Credit Policy is announced and will take a cue from other banks, Kidwai said. She is also positive about the Indian economy and believes that it will maintain a growth rate of 8.5%.