The Hindu Business Line : `RBI move a measure to contain inflation'

Credit offtake may not slow down but growth could be around 20-25 per cent unlike 30 per cent as seen in the last two years. No immediate hike in lending rates, say bankers

Mumbai , June 8

The Reserve Bank of India's (RBI) move to raise short-term interest rates is seen as a measure to contain inflation in the backdrop of rising oil prices.

Bankers said that there might not be an immediate hike in lending rates as liquidity is ample. However, they did not rule out an increase in loan rates in the long-term.

"The timing is appropriate because of indicators like hike in the US rate as seen from the Fed Chairman's statement, global interest rates, inflation and petrol price hike,'' said Mr M.V. Nair, Chairman and Managing Director, Union Bank of India.

Mr M. Balachandran, Chairman and Managing Director, Bank of India, when contacted, said, there is huge liquidity available right now. RBI may have done this to keep liquidity under check. Worldwide there is hardening of rates.

"This is a move to absorb liquidity and this rate hike was expected. This may not necessarily lead to a rate hike in Bank of India,'' he said.

About a possible hike in the loan rates, he said, "We have to wait and watch. We have not revised home loan rates for some time. It should be market driven. If all raise rates, we would raise rates as well,'' he said.

Ample liquidity is evident in the fact that in the first one-day reverse repo auction under LAF, RBI received and accepted 31 bids amounting to Rs 27,140 crore and in the second one-day reverse repo auction, 46 bids for Rs 30,875 crore on Thursday.

"If it had happened in March, it would have been different. Right now, banks have enough resources. Therefore, the impact of the rate hike may not be immediately seen, in BoI at least,'' Mr Balachandran said.

However, Mr K. Ramakrishnan, CMD, Andhra Bank, believes that there is a likelihood of interest rates hardening following the rate hike. "Except the priority and agriculture sector, rates could rise across all sectors. There is need to re-look at interest. Corporate loans will rise first and SME sector could be last. All banks would increase their PLR by 50 basis points,'' he said

Regarding interest rates on the deposit side, he said rates are rising on the higher end for term deposits over five years. "These are strategies to garner deposits by banks.''

Bankers said that credit offtake may not slow down. But growth could be around 20-25 per cent unlike 30 per cent as seen in the last two years.

"Markets should not have been surprised because RBI had clearly said in the annual monetary policy that if they saw inflation signs they would hike rates,'' Mr Bhaskar Ghose, Managing Director, IndusInd Bank, said.

"The only thing that probably surprised the market was the timing. The market may have thought that it would come a little later, maybe during the policy,'' he said.

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