The Reserve Bank of India (RBI) is confident of tiding over the recent spurt in inflation, Governor Y V Reddy indicated to bankers at today's pre-policy meeting, said Indian Banks' Association Chief Executive Officer HN Sinor. | |
| "There is enough cushion to take care of the temporary problem and things should be okay," Sinor said. The meeting with bankers focussed more on inflation and ways to combat the surge in the index, said T S Narayanasami, chairman and managing director, Bank of India. |
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| India's headline inflation rate surged to a 59-week high of 6.68 per cent for week to March 15, way above the central bank's 2007-08 (April-March) target of 5 per cent. |
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| On whether there was any indication from RBI top officials towards hike in interest rate or cash reserve ratio, Narayanasami said, "They won't give a hint. It's a combination of very stern fiscal and monetary measures, which are needed to combat inflation." |
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| "The whole government is concerned on inflation. Yesterday (Monday) fiscal measures were taken, monetary measures will have to follow," Narayanasami said. A CRR hike may impact economic growth, as cost will go up for the industry, he said. |
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| "It's difficult to take a balanced view. A balanced view between inflation and growth is totally necessary. But the current situation is such that you will have to stick to one side of the road at least for an interim period to see corrections are made," he said. |
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| Governor Reddy re-emphasised that India will remain one of the best-managed economies of the world, Sinor said. However, according to Sinor there was no clear indication of a hike in interest rates or CRR."Our (bankers) view is inflation is more of a supply-side issue and fiscal measures are needed and they have been taken also," Sinor said. |
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| This inflation spurt is an overdue correction and there is nothing to worry, Sinor said. The RBI governor along with the four deputy governors - Rakesh Mohan, Shyamala Gopinath, Usha Thorat, and V Leeladhar - today met a group of six bankers to take stock of the problems faced by bankers and their view on the current macroeconomic situation ahead of the central bank's annual monetary policy statement on April 29. |
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| The bankers attending today's meeting were State Bank of India Chairman O P Bhatt, Bank of India head Narayanasami, ICICI Bank Managing Director and Chief Executive Officer K V Kamath, Canara Bank Chairman and Managing Director M B N Rao, Citibank CEO Sanjay Nayar, and IBA CEO Sinor. |
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| Bankers also expect credit growth to remain subdued in 2008-09 (April-March) following the slowdown in gross domestic product growth. "Credit growth will have to be little moderated. When there is a slowdown in the economy, a guarded approach is all the more necessary in an expanding asset base," Narayanasami said. |
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| With interest rates not expected to ease now due to sharp rise in inflation, bankers will wait for the RBI's annual monetary policy statement to decide on rolling back their decision of reducing prime lending rates. |
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| On whether Bank of India will roll back the cut in PLR, Narayanasami said, "Everything depends on what the monetary measures are going to indicate, what impact they have on the banking system. (If CRR hike happens) perhaps (PLR cut can be rolled back)". |
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| Saturday, IDBI Bank held back its earlier announced decision of cutting PLR on concerns of policy tightening steps by the RBI to contain inflation, IDBI Bank's Chairman and Managing Director Yogesh Agarwal had said. |
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| Most large state-run banks have cut their PLR by 50 bps in February after getting cues from the RBI on moderation in interest rates and Finance Minister P Chidambaram also urging banks to do so. |
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