In a bid to check the soaring inflation by sucking out liquidity, the bankers expect the Reserve Bank of India (RBI) to raise cash reserve ratio (CRR) by 50 basis points in its forthcoming review of annual monetary and credit policy on January 29 However, they don?t see any increase in policy rates, like repo and reserve repo, as it would affect the fledging economoic recovery.
The bankers said though there is liquidity overhang in the system, no credit offtake is happening. While marginal CRR hike will suck out the excess liquidity, tweaking of policy rates is being expected by the bankers.
A delegation of the Indian Banks? Association (IBA) comprising heads of some large banks will be meeting RBI top officials in Mumbai on January 14 to discuss their views on the forthcoming monetary policy.
An internal monetary policy committee of IBA is also meeting on January 7 to prepare a draft proposal for the bankers who would be meeting with RBI governor D Subbaro on the eve of the policy.
The IBA committee comprises economists and treasury heads of some of the leading public, private and foreign sector banks.
JM Garg, chairman & managing director of Corporation Bank, said though there is sufficient liquidity in the system, credit offtake is yet to take off.
?Also, I see some kind of signal of tightening of the monetary policy. So, interest rates are not likely to go up. Still, RBI may give some signal by increasing CRR by 25 bps. But there is little chance of increase in reverse repo as banks are already keeping their money through the RBI window. RBI may also think of increasing repo rates by 25 bps.?
Bank of Maharashtra CMD Allen CA Pareira doesn?t see any increase in either CRR or any other policy rates. ?At present, high inflation was due to increased food prices and it has nothing to do with excess liquidity. Secondly, no credit offtake is happening and hence banks are trying to make some money by putting their amount in call money and other such avenues,?? he said.
Giving his views, M Narendra, executive director, Bank of India, explained, ?I don?t see CRR hike beyond 25 basis points. RBI has to balance between growth and inflation. Actual growth in economy and industry are yet to come. Hence RBI will not give any signals by tweaking its policy rates as the banks are not in a position to go for the reversal of interest rates as of now. Even though there are indications of the withdrawal of fiscal stimulus by the government, it is likely to continue until the end of the current fiscal.??
Rupa Rege Nitsure, chief economist, Bank of Baroda said inflationary pressure is there which is coupled by the supply side constraint. Moreover, liquidity overhang is also there. So, the RBI will have to focus management of liquidity.
Shubhada Rao, chief economist, Yes Bank, said, ?I also see a 50 bps hike in CRR as there is liquidity overhang into the system. Though credit growth has begun to pick up, excess liquidity is likely to continue to prevail for sometime now. Liquidity worth Rs 1 lakh crore was back into system through liquidity adjustment facility (LAF). Hence, in its bid to mop up the s liquidity, the RBI may go for tightening of monetary policy. But, I do not see any hike in policy rates this time as the situation doesn?t warrant so.?