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Our Bureau

The RBI Governor, Dr Y.V. Reddy, addressing a press conference in Mumbai on Tuesday. - Paul Noronha

Mumbai , Oct. 25

LOAN products across the board could cost more with the RBI switching on to a high interest regime to contain a swell in prices. Corporate and housing loans, which do not carry fixed interest rates, could be dearer by 0.25-0.30 percentage points in the near future. Bankers said deposit rates could also go up by 0.25 percentage points in line with the hike in lending rates.

Setting the measures to achieve price stability, the Reserve Bank of India on Tuesday hiked the reverse repo (price at which RBI absorbs excess bank funds) from 5 to 5.25 per cent and the repo rate (the price at which RBI lends money to banks) from 6 to 6.25 per cent.

The RBI had marked up the reverse repo by 0.25 percentage point to 5 per cent in April 2005.

The Mid-term Review of Annual Policy Statement, 2005-06, released here, says, "Given the outlook for inflation primarily in the context of the oil economy in India, it may be difficult to contain the inflation in the range of 5-5.5 per cent projected earlier without an appropriate policy response."

Bank rate, CRR untouched: But the RBI has upped GDP growth estimates for the current year from 7 per cent to 7-7.50 per cent while leaving unchanged the bank rate at 6 per cent and the Cash Reserve Ratio at 5 per cent.

Addressing newspersons, the RBI Governor, Dr Y.V. Reddy, said monetary policies across the globe were moving towards lesser accommodation and in some cases tightening.

"Oil imbalances have created more problems," he said.

Domestic developments: Commenting on domestic developments, Dr Reddy said growth in the quarter ended September 30, has strengthened and the manufacturing sector has performed better than expected.

"Credit growth has been relatively broad-based," he said leading to a slight hardening of interest rates in the financial markets.

On a year-on-year basis, non-food credit growth at 31.5 per cent as on September 30, was higher over 24.9 per cent a year ago.

Surplus liquidity resulted in the reverse repo volumes tendered under the Liquidity Adjustment Facility rising from Rs 29,809 crore in March to Rs 34,832 crore in August before declining to Rs 21,128 crore in October.

Liquidity: On liquidity, Dr Reddy said, "Last year we had significant liquidity. In the last six months there has been a slight unwinding. But after that there has been no significant addition or reduction in liquidity. We have rupee liquidity in MSS and dollar liquidity in reserves."

On the introduction of intra-day short selling in government securities, Dr Reddy said there is need for consolidation of the G-Sec market as from April 2006 RBI will not participate in it.

Banks' capital market exposure: The RBI has also allowed banks to increase their consolidated exposure to the capital market to 40 per cent of their net worth from 20 per cent with the earlier ceiling of 5 per cent of total outstanding advances as on March 31 of the previous year being scrapped. Dr Reddy said the move would align the banks' risk taking capacity with their net worth. "We are not rigid on risk taking," he added.

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