Thaindian News

Chennai/New Delhi, April 20 (IANS) The Reserve Bank of India (RBI) is expected to continue increasing the repo and reverse repo rates in months to come, said a senior official of HDFC Bank.
“We expect the central bank to continue to pace its policy rate tightening cycle towards a 75-100 basis points (bps) hike in the repo and reverse repo rate over the remainder of FY11. A further 25-50 bps in cash reserve ratio (CRR) over the course of financial year most likely concentrated in second quarter of FY11,” Abheek Barua, the bank’s chief economist, said.

Barua, reacting to RBI’s annual monetary policy statement unveiled Tuesday, added: “Lending rates unlikely to inch up significantly before June-July 2010 but see rate hardening kicking in Q2FY11. We expect lending rates to move higher by 75-100 bps over the course of FY11.”

RBI Governor D. Subbarao in his annual monetary policy statement increased the repo and reverse repo rates by 25 bps to 5.25 percent and 3.75 percent.

Subbarao also increased the CRR by 25 bps to 6 percent of commercial banks net demand and time liabilities effective from Apr 24 and in the process sucked out Rs.12,500 crore from the banking system.

“RBI’s action of increasing reverse repo, repo rate and CRR by 25 bps each was more in line with current macro-economic and inflation trend. However, it was lower than the expected,” said Devendra Kumar Pant, Director, Fitch Ratings.

According to Edwelweiss Capital economist Siddhartha Sanyal, the current tightening is being accepted favourably by the markets as it was on the expected lines.

“Even after such tightening (and factoring in a few more doses in the coming months), policy rates will still stay far below their “steady-state” levels - long-term average level of repo rate in India is around 6.0-6.5 percent,” he said.

Pradeep Jain, chairman of Parsvnath Developers, said: “While the increased CRR, Repo and Reverse repo rates will check any runaway growth in money supply, the impetus on infrastructure lending will ensure that economic growth will continue unchecked.”

“For realty sector the focus on infrastructure growth is a welcome sign. I don’t foresee any increase in interest rates on home loans in the first quarter of the current fiscal as currently there is sufficient liquidity in the market, but definitely the banks shall be raising the lending rates in the longer run,” he said.

However, in the near term home buyers will not find interest rate as a stumbling block in their buying decisions, Jain added.