Hike in interest rates now seem likely

Mumbai, New Delhi, Jan 19 | Updated: Jan 20 2007, 05:46am hrs
With the inflation rate rising to 6.12%, the case for a hike in key benchmark rates in the Reserve Bank of Indias forthcoming monetary policy review has been further strengthened.

Rana Kapoor, managing director and CEO, Yes Bank, said, Production capacity has gone up. However, it has not been able to keep pace with the demand-pull in the economy. Now, we have a reason to believe that there could be a hike in the repo rate and the reverse repo rate.

Also possible is a revision by governor YV Reddy of the apex banks inflationary targets to 5.5-6% from its earlier range of 5-5.5%.

Experts believe there is a need for price moderation in housing and real estate, where prices have nearly doubled in the past two years in major cities.

PK Gupta, chairman and managing director, United Bank of India, said inflation crossing 6% was cause for concern. An upward revision of interest rates may become necessary in the short term if this situation continues, he said, adding the revenue of banks through government securities was also shrinking.

Going forward, bankers said while the threat of high global oil prices has subdued, that of domestic inflationary pressure has, however, started making its presence felt. Oriental Bank of Commerce chief KN Prithviraj said fiscal and monetary policy should compliment each other to control inflation.