The Hindu Business Line : `Rate hike will check demand pressures'

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Mumbai Jan 31 Crisil Research expects sustained industrial buoyancy and demand pressures along with an unfavourable base effect to exert upward pressure on inflation.

However, the average inflation for the year is expected to remain in the 5-5.5 per cent band.

In the Government securities market, the ratings agency expects the yield on the 10-year gilt to end 2006-07 in the 7.8-8 per cent band.

The rate hike will keep a check on demand pressures by monitoring credit growth and elevated asset prices in the economy.

According to Dr Rupa Rege Nitsure, Chief Economist, Bank of Barodathe real concern for corporates is rising asset prices rather than interest rates. Credit flows to sensitive sectors such as real estate would certainly see some degree of moderation; the overall credit growth will moderate to 25-28 per cent from the current 30 per cent-plus levels.

Mr Jayesh Mehta, Managing Director & Head Debt Capital Market, DSP Merrill Lynch, said for the first time, the RBI has focused on the quality of credit rather than its growth or the rate structure. The regulator has given a clear message to the lending community to keep a check on the quality of assets. By not cutting SLR as expected, the bank has stressed on the quality of credit.

The genuine and blue chip coporate borrowers may not face hardships, and with S&P upgrading India's sovereign rating, the rates would become more competitive.

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