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RBI hikes repo rate by 0.25%, indicates no more rate hike in near future

25 Oct 2011 Evaluate

The Reserve Bank of India (RBI), which raised its key policy rates for the 13th time since Match 2010, had indicated that it may not go for another rate hike in the near future. While announcing the credit policy, the RBI Governor D Subbarao said that the inflationary pressures are expected to ease starting December 2011 and is likely to go down to 7% by March 2012 and hence further rate hike may not be required to curb inflation.

The headline inflation measured by the Wholesale Price Index (WPI) have been hovering around double digit mark, as per the official data, headline inflation for the month of September stood at 9.72%, which is way above the RBI’s comfort zone and RBI governor expects inflation and inflationary expectations to be at the current level for coming two months.

On the RBI’s anti-inflationary monetary stance, he said the impact of past monetary policy is still unfolding and hence the RBI, for now, is persisting with the anti-inflationary monetary stance. However, he expects inflation to decline from December onwards and a decline in inflation will help in keeping the chances of a rate hike in early 2012 low.

Earlier, the RBI had cumulatively raised the cash reserve ratio (CRR) by 100 basis points. However, on the basis of current assessment, bank rate and CRR has been retained at 6%. The RBI has also left the statutory liquidity ratio (SLR) untouched at 24%. Further the RBI also deregulated the savings bank deposit interest rate with immediate effect, with some condition.

Based on two conditions banks are free to determine their savings bank deposit interest rate. First the banks will have to offer uniform interest rates on the saving banks deposits up to Rs 1 lakh, irrespective the amount in the account within Rs 1 lakh and saving banks deposits more than Rs 1 lakh banks are free to offer differential rate of interest. However, banks cannot do any discrimination from customer to customer on interest rates for similar amount deposit. 

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