After increasing the cash reserve ratio (CRR) by 75 basis points, prediction that the rising inflation could prompt the central bank to increase the key indicative rates?the repo and reverse repo?before the end of the current financial year has received mixed reactions.

Uday Kotak, vice-chairman & managing director of Kotak Mahindra Bank, is of the opinion that the central bank may hike rates by 125-150 basis points in financial year 2010. But, he maintains that this won?t disrupt growth. In its recent review of the policy, the Reserve Bank of India (RBI) kept both the policy rates unchanged, with the repo rate at 4.75% and reverse repo at 3.25%.

However, several bankers are of the opinion that RBI would refrain from doing so at the moment and monitor the inflationary situation and, if required, tinker the rates on April 20, at the time of the annual policy announcement. Unless inflationary pressures crosses the 8.5% target, RBI would not step in.

The issue of a hike in key rates was widely debated at the RBI before the policy announcement. D Subbarao, governor of RBI, immediately after the policy announcement on January 29, mentioned to the media, ?Yes, raising both the rates was our consideration. But, we finally thought we should first aim at absorbing the excess liquidity by a predictable amount. And then go for other policy measures.?

Though this CRR hike may not provoke banks raise their lending rates immediately, it would create a pressure on their net interest margins (NIM), which may decrease by 8-10 basis points as the CRR does not attract any interest.

AC Mahajan, chairman & managing director of Canara Bank, doesn?t see any reason for a hike in any of the policy rates for three to four months. Mahajan believes, ?Firming inflation is a worrisome issue. Still, we should have a balanced view of the economy as there are other things that we have to keep in mind.? Some of those issues may include growth, employment and production, he added.

Similarly, KR Kamath, chairman & managing director of Punjab National Bank, feels, ?There is no provocative reason for the RBI to go for hike in any of the policy rates for sometime in future, as the central bank has already done whatever best it could have in the present circumstances.?

Right now, bankers reckon that a good monsoon resulting into a good forthcoming rabi crop and stability in global oil prices would be the key factors. According to M Narendra, executive director of Bank of India, ?Another significant thing to watch was what will be the quantum of government borrowing programme for the next fiscal. As the government borrowing has to be made hasslefree this time too, then the interest rates will have to be kept unchanged.?

?CRR hike balances growth & inflation?

Expressing concern over the rising food prices, RBI on Monday said its decision to raise CRR was a carefully-weighed decision to maintain a balance between growth and inflation. The apex bank has also said it has no immediate plan to hike interest rates.

?Inflation has been driven by soaring food prices on the back of short supplies. The wholesale inflation stands at 2.1% if food items are excluded,? RBI governor D Subbarao said at a teleconference. However, he feels overall inflation is to cool down from July.

Subbarao also clarified that the banks have told him rise in CRR wont prompt them tamper with the rates as there is abundant liquidity in the system.