The central bank may hike key interest rates
By Neelima Shankar
Oct 7, 2009
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Bankers and economists say that RBI might hike the key interest rates next fiscal to moderate the excessive capital flow in the market that could arise from the increase in credit demand between October and March, and government borrowings.

Presently, there are no concerns regarding liquidity. The banks have already deployed their surplus funds of around Rs 80,000 crore at the apex bank's reverse repo window and around 1.50 lakh crore in liquid schemes of mutual funds.

The treasury head of a bank said that "Given the current liquidity position, banks can comfortably meet the demands of trade, industry, agriculture and retail segments."

However, the inflation which is measured in wholesale price index (WPI) terms in India might rise and could compel the central bank to increase the interest rates. The WPI is likely to rise to six percent by March next year.

A report from Nomura bank said "We expect both growth and inflation to surprise on the upside in the coming months. As such, we maintain our view that the RBI will hike its repo/reverse repo rates and CRR by 125 basis points each by end-2010."

Earlier C Rangarajan, prime Minister's EAC, said that interest rates were likely to increase. He said that the capital flow had improved but was less as compared to the previous two years. However, according to him inflows through foreign direct investment (FDI) and foreign institutional investment (FII) would be larger this year vis-à-vis last year.


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