Reserve Bank likely to raise key rates, says E&Y

Ahead of the Reserve Bank’s quarterly monetary policy, global consultancy firm Ernst & Young today said the central bank is likely to signal an interest rate increase to suck out liquidity from the market and check prices from spiralling further.

It further said the Reserve Bank may also raise the amount banks need to park with the apex bank (CRR) by up to 50 basis points.

“The Reserve Bank could raise the short-term borrowing (reverse repo) rate by 25 basis points. The central bank is likely to hike cash reverse ratio by up to 50 basis points,” Ernst & Young partner & national director for financial services Ashvin Parekh said.

The Reserve Bank will announce the third quarter review of the monetary policy on January 29, amid speculations that it may signal an interest hike to tighten money supply and check rising prices. Parekh further said there is inflationary pressure and the wholesale price index is likely to reach 8.5 per cent by the end of the current financial year.