RBI may hike repo rate again by 25 bps during H2FY14: ICRA

By Naresh Takkar, MD & CEO, ICRA Ltd

The RBI as expected hiked the Repo rate by 25 bps to respond to the uptick in inflationary expectations and guard against a generalization of inflationary pressures, since factors other than high interest rates, such as structural constraints have also contributed to anemic growth. In order to assuage liquidity concerns at affordable rates to productive sectors, the RBI cut the marginal standing facility (MSF) rate by 25 bps, compressing the Repo-MSF corridor back to 100 bps, and also increased the magnitude eligible under term-repo by 0.25 percent of NDTL. Given the inflationary expectations for the rest of the year, we believe that the RBI could increase the Repo rate again by 25 bps during the second half but provide liquidity using other monetary tools at its disposal.

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