The Hindu Business Line : Tweaking of CRR in order, feel economists

Thiruvananthapuram, July 27 Leading economists are not too sure if the Reserve Bank would announce a hike in rates in the July 31 monetary policy, but they believe that a tweaking of the cash reserve ratio (CRR) would be in order.

“We see a case for some liquidity excision in the form of a CRR hike of 50 bps,” says Mr Abheek Barua, Chief Economist, HDFC Bank.

Mr Barua also saw further upside for the rupee in the short term, inviting strong central bank intervention to defend the Rs 40-to-a-dollar level.

Inflation remains in check despite robust headline industrial growth. “We see some moderation in industrial growth over the year and inflation at sub 5 per cent for the rest of the financial year,” he added.

Dr D.K. Joshi, Director and Principal Economist, Crisil, expected the RBI to hold rates steady. The slowing down of interest sensitive segments such as durables and auto combined with a drop in inflation to below 4.5 per cent will prom pt this stance. The RBI could, however, tweak the CRR to tackle liquidity. Although inflation in some of the manufacturing sectors such as cement and steel is high, he does not see the RBI raising rates on account of this.

“Currently liquidity is ample and is likely to remain so in the coming months. Liquidity management in the face of strong capital inflows will be a major challenge,” he added.

The appreciation pressure on rupee/dollar will continue. “With the RBI intervention, we expect the rupee/dollar to hover around 40.5 in the rest of the fiscal,” Dr Joshi said.

Airing his personal views, Mr Harish Menon, Economist, ING Vysya Bank, said that while he did not expect any hike in policy rates, the stance would remain hawkish.

The RBI is not as concerned about surplus liquidity as it was during the early part of the year owing to the fact that credit growth and inflation have moderated significantly.

Growth in the US economy should sustain over the next few quarters and the dollar might regain strength in the near term, resulting in rupee weakness, Mr Menon said.