An increase in the cash reserve ratio (CRR) could be followed by a hike in repo rate by the Reserve Bank of India (RBI), say analysts and senior bankers. But the inflation figures that emerge this week will determine whether the central bank opts to increase repo rate. If the inflation rate shows signs of easing up, the RBI may prefer to maintain status quo. At present, the repo rate stands at 7.75% while the reverse repo rate is 6%.
Public sector banks have indicated that they revise their prime benchmark lending rates upward, even as finance minister P Chidambaram indicated earlier that banks should try and cut rates. ?We have to think of bottomlines and with CRR being increased to 8% it may not be possible for us to maintain status quo on PBLR. Though a clear picture on interest rates would emerge only after the monetary policy, there is pressure on banks and hiking rates may be the only resort,? a PSU bank CEO told FE .
The latest hike in CRR by 50 bps to 8% is expected to suck out about Rs 18,500 crore from the system. Banks earn no interest on the CRR. ?On one hand mandatory CRR level has been hiked and on top of that there is no interest inflow on the same. Though the measure is intended to keep inflation in control, it does not spell good news for the banking industry,? a senior banker said. Bankers would raise the matter of upping interest rates in their meeting with Chidambaram on May 1.