You are here: Home » Finance » News » Banks
Business Standard

BS POLL: Street divided on RBI action

Out of 15, 7 sees CRR cut, only one expects rate cut

Neelasri Barman  |  Mumbai 

The of India (RBI) is likely to hold in the mid quarter review of the scheduled 18 December, according to a Business Standard poll, but the street is divided whether the central bank will opt for another round of cut in cash reserve ratio. The has reduced CRR by 175 basis points (bps) in 2012 to ensure credit flow to the productive sector is not affected. had reduced interest rate by 50 bps in April -- which was the first time in three years -- but paused thereafter.

Out of 15 respondents comprising economists, treasurers and fund managers, 8 of them said will not cut CRR -- the proportion of deposits keep with as cash -- rather the central bank will continue with to infuse liquidity by buying government bonds via open market operations. The had resumed open market operations last week and expected to conduct at least two more OMOs till the mid quarter review.

However, despite slowing economic growth, an overwhelming number of respondents believe the central bank will maintain status quo on by not cutting the key policy rate or the repo rate as inflation is still above the central bank’s comfort zone. This means the high are set to pinch India Inc for some more time as will refrain from cutting the lending rates.

“We do not expect repo rate cut in December. Inflation needs to come off. At best we could see action in January review. As far as the liquidity easing is concerned, is already renewed its OMOs route for easing liquidity,” said Shubhada Rao, chief economist, Yes Bank.

WPI-based Inflation stood at 7.45% in October, compared with 7.81% in September.

The concern faced by the street is the liquidity pressure as daily average borrowings by under the RBI's Liquidity Adjustment Facility (LAF) has been close to Rs 1,00,000 crore in the last one month. It is also likely that the average LAF borrowing may inch up during mid December 15, when the third installment of corporate advance tax outflow will take place.

According to market players, the may resort to more OMOs to provide liquidity in the market. “We are looking for a minimum of Rs 60,000 crore of OMOs from now till March 31. We do not have an upper cap on OMOs as that will depend on forex market operations of the RBI,” said Suyash Choudhary, head-fixed income, IDFC Mutual Fund.

The infused liquidity worth Rs 11,642.9 crore on Tuesday through OMOs compared with the notified Rs 12,000 crore.

First Published: Tue, December 04 2012. 19:43 IST
RECOMMENDED FOR YOU