The government on Tuesday endorsed market expectations of a further tightening of monetary policy by the Reserve Bank in the annual review on April 20.
?The RBI could further tighten its monetary policy while it tries to balance growth and inflation,? financial services secretary R Gopalan said here. ?I share the views of some experts that some further amount of tightening is required,? Gopalan said.
The central bank is widely expected to raise policy rates by 25 basis points and suck excess liquidity from the system.
Chief economic advisor Kaushik Basu said in Mumbai, ?The inflation figure in March will be on the higher side. But if the rise is across-the-board, some tight monetary measures can be expected from the Reserve Bank.?
The RBI last month surprised markets by hiking repo and reverse repo rate by 25 basis points each. Repo rate is the rate at which RBI lends to commercial banks, while reverse repo is the rate at which it borrows.
Inflation rate that has already surpassed the RBI?s comfort zone will be a key concern for the central bank. Inflation has risen to 9.89% in February, much beyond the RBI?s March-end projection of 8.5% and is expected to touch double-digits when the government releases the March data on Thursday. ?Inflation will certainly be an issue which the RBI will take into account,? he said.
Gopalan said the central bank will have to strike a balance between growth and inflation. ?But there is an issue of growth. They (RBI) have to make a balance (between growth and inflation),? he said. On the kind of instruments the RBI might use to further tighten its monetary stance, Gopalan said, ?What instruments they will use, it is for them to decide.? The RBI is also expected to raise the cash reserve ratio (CRR), the slice of deposits banks need to keep with the RBI, to absorb excess liquidity and take the monetary unwinding to the next level.
In January, the RBI raised CRR by 75 basis points to 5.75%, while raising repo and reverse repo rate by 25 bps to 5% and 3.5%, respectively. On the issue of recapitalisation of the public sector banks, Gopalan said the department has sought approval of the Union Cabinet for infusing Rs 15,000 crore into the public sector banks.
The country?s largest lender State Bank of India is not seeking recapitalisation and instead, it is exploring other options to raise capital such as the rights issue.
SBI is yet to approach the government, which is its largest shareholder, for approval of any of the capital raising plans.
