The increase in policy rate by 25 basis points was against the expectations of a majority of market participants, according to P. Jayarama Bhat, Managing Director of Karnataka Bank Ltd.

Speaking to Business Line, he said that the rate increase at this stage expresses the central bank’s strong persistence to bring in price stability.

Accomodative stance

However, there has been a clear indication from the RBI Governor that there may be an accommodative stance once the headline inflation number comes within the comfort level, he said.

Even though there may be some impact on the overall growth and the hardening of the interest rates at the longer end of the rate curve, the markets are expected to take comfort from the dovish guidance of RBI, Bhat said.

Hike in lending rates

Asked if the banks will increase the lending rate at a time when there is a sluggish credit growth, he said it all depends on the individual liquidity level of the respective bank.

Stating that there was a sluggish credit growth so far, he said on account of that some banks have got surplus liquidity also. So credit growth, which is expected in the last quarter of the fiscal, will be taken care of by this liquidity.

Credit growth

If a good credit growth is expected, then naturally the banks may have to increase the interest rates and get funds. It all depends on how the market reacts and short-term interest rates move, he said.

Asked about his bank’s stance, Bhat said: “We are comfortable as far as our liquidity is concerned. We may not immediately react. We will discuss and then go forward.”

vinayak.aj@thehindu.co.in

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