The Hindu Business Line : RBI not for lending rate hike: SBI chief

The Reserve Bank of India has sought to maintain the growth momentum in the economy by maintaining the status quo with regard to Bank Rate, CRR and Reverse Repo. However, fixed repo rate under the LAF has been hiked by 25 bps which will make borrowing from RBI costlier. The central bank's message is clear: so long as deposit growth and liquidity in the system permits, there is no need for banks to tamper with interest rates to support higher growth in non-food credit, according to the Chairman of State Bank of India, Mr O.P. Bhatt.

Mr Ajay Mahajan, President - Financial Markets, Institutions and Investment Management, YES Bank, said the RBI surprised yet again by thinking out of the box. It has widened the LAF corridor and pushed the Repo rate higher by 25 basis points. "This rate gets usually tested a few times in the year in periods of extreme tightness in the interbank market, and now happens to be one such period of tight liquidity. Markets, after all, are driven largely by sentiment and a relatively harmless move like this (remember reverse repo rate stays unchanged), can lead to higher volatility. A section of this market believes that the rates have effectively been tightened as a result. We belong to this camp. We also perceive that this move is also effected to goad the banking system to be self reliant in raising resources before disbursing, i.e. not to bring too much funding mismatch to the inter-bank market", he said.

Mr P.T. Kuppuswamy, Chairman, Karur Vysya Bank, said that the RBI Governor has attempted to do a fine balancing (in the mid-term review of the annual credit policy) between sustaining the growth momentum and moderating inflationary expectations.

"The stance reflects RBI's bias, for this time round RBI has assigned more weight to domestic rather than global factors. It reiterates the apex bank's concerns with respect to higher expansion in money supply and unabated growth in credit off-take," he said.

On the 25 basis point hike in the repo rate rather than the reverse repo rate, he said, "it is perhaps suggestive of expected tightness in liquidity in the coming quarter."

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