Industry sees 25-bp rise in policy rates, says RBS survey

An industry poll conducted by RBS India on Tuesday said a majority expect Reserve Bank of India (RBI) Governor Raghuram Rajan to raise the key policy rates by at least 0.25 per cent next week, when he unveils the second quarter review of monetary policy.

"More than 55 per cent of the respondents are expecting a 25 bps (basis points) hike in the repo rate in this policy cycle and a similar hike in the reverse repo rate as well," RBS India said. The survey covered 150 local market participants, including corporate clients, banks, insurance companies and mutual funds. About 56 per cent of the responses came from a corporate clientele and the rest from financial institutions.

Nearly everyone (97 per cent) expects the governor to leave the cash reserve balance requirement unchanged at four per cent, it said.

In the mid-quarter review, the central bank had increased the repo or the rate at which it lends to banks by 25 bps to 7.5 per cent, while also partially reversing the July 15 tightening steps by reducing the Marginal Standing Facility gap by 75 bps to 9.5 per cent.

The reverse repo is currently pegged at 6.5 per cent, while the repo is 7.5 per cent. One bps is equal to 0.01 per cent.

The survey said the market expects the rupee to remain in the range of 59-64 in the medium term. Around 42 per cent see the rupee strengthening to below 62 to the dollar by December end, while only 35 per cent expect the same by March. Around 89 per cent expect CRR to remain unchanged while five per cent expect a 25 bps cut by March. Around 65 per cent expect at least a 25 bps hike by March 2014 while around 18 per cent expect no change.