RBI seen tightening CRR further

Written by Reuters | Mumbai, April 30: | Updated: Apr 30 2008, 14:27pm hrs
The Reserve Bank of India (RBI) is seen following Tuesday's rise in banks' reserve requirements with another increase in coming months to tame inflation, but interest rates are unlikely to be increased, a Reuters poll shows.

Nine out of 11 analysts expected the RBI to raise the cash reserve ratio (CRR), the percentage of deposits banks need to keep with it, again in 2008, with forecasts ranging from 25 to 100 basis points.

"It's contingent on the kind of liquidity we are likely to see in the next three to six months. I don't see one till the next policy," Abheek Barua, chief economist with HDFC Bank, said.

None of the analysts expected the central bank to change the repo rate , at which it lends to banks, or the reverse repo rate , its short-term borrowing rate.

In its policy review on Tuesday, the central bank raised the CRR by 25 basis points to 8.25 percent, its highest level in seven years, with effect from May 24, and it signalled it was ready to act again to rein in inflation, which is running at three-year highs above 7 percent.

Tuesday's increase was the second this month. On April 17, the RBI announced a two-stage 50 basis point increase in the CRR. The first leg kicked in on April 26, while the next takes effect on May 10.

The central bank left the repo rate, now at 7.75 percent and reverse repo at 6.0 percent, unchanged at Tuesday's review. It has kept the repo rate steady since March 2007.