RBI may cut CRR in Q3 policy review: HDFC vice-chairman

As first step indicating easy monetary policy, the Reserve Bank of India may cut the cash reserve ratio (CRR), rather than reduce repo rate, in the policy review scheduled on January 24, according to HDFC vice-chairman Keki Mistry. The Central bank raised CRR, a portion of deposits that banks keep with RBI, by 100 basis points to 6 per cent in February-April 2010. The move was part of tightening the monetary policy to control inflation. Hike in CRR reduces money in circulation.

Mistry, speaking at Wharton Business School conference here, said the interest rates would begin to ease in three-six months. The system has seen a sharp hike in rates for last 15 months in response to RBI’s monetary policy tightening.

The RBI has raised interest rates 13 times since March 2010 by 375 basis points as headline inflation has been steadfastly above 9 per cent for the year.

Now a rapid slowdown in food inflation in December has raised hopes of a reversal its monetary tightening cycle. RBI in its mid-quarter review in December 2011 said monetary policy actions are likely to reverse the cycle, responding to the risks to growth.

He, however, did not say when mortgage lender HDFC Ltd would begin to reduce home loan rates. Its retail prime lending rate stands at 16.5 per cent. The effective rate is 10.5 per cent for loans upto Rs 30 lakh, 10.75 per cent for Rs 30-75 lakh and Rs 11.25 per cent for loans above Rs 75 lakh.

Referring to growth environment in 2012, Chanda Kochhar, managing director and chief executive, ICICI Bank, said continuing domestic (rural consumption) and finalising financial closure for some projects will provide impetus to growth.

Indian companies have shown a robust execution capability. This would help in project implementation, Kochhar said.

However, the headwinds seen in 2011, like the euro zone crisis, remain relevant this year as well.