The Hindu Business Line : Hike will rein in credit growth: RBI

Mumbai, June 24 The Reserve Bank of India’s dual measures of a hike in repo and Cash Reserve Ratio will help tackle the problem of money supply and also rein in credit growth, which are targets set by the central bank.

Explaining the decision to hike rates, the RBI said that money supply increased by 21.4 per cent as on June 6, over and above the growth of 21 per cent a year ago and well above the indicative projection of 16.5-17 per cent set for 2008-09.

Similarly, reserve money increased by 28.5 per cent as on June 13 compared with 24.6 per cent a year ago. Aggregate deposits, which grew by 23.2 per cent as on June 6, were above the projection of 17 per cent for 2008-09. Non-food credit growth was 26.2 per cent, above the indicative projection of 20.0 per cent.

The RBI sounded a note of caution while announcing the hikes in CRR and repo. It said in its note, “The new reality of high and volatile energy prices is not necessarily a temporary phenomenon any longer.”

The RBI surmised that while “the major focus of public policy at the current juncture needs to be on dealing with the impact of the escalation of international crude prices”, “moderating and managing the aggregate demand so that pressures on prices are not intensified is a critical element of this approach.”

PNB Reaction

Our Delhi bureau reports: Punjab National Bank (PNB) may increase its interest rates following the RBI’s decision to hike repo rate and Cash Reserve Ratio (CRR) by 50 basis points.

“I think our rates will have to go up. There is no alternative. Our asset liability committee will meet in the next few days and examine the issue. As a market player, we have to take note of the signal that the monetary authority (RBI) is giving us,” Dr K.C. Chakrabarty, Chairman & Managing Director of PNB, told Business Line, after the RBI announcement.

Only last week, the PNB Chairman had indicated that the bank’s ALCO would meet this month-end to review the interest rates.

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