Market participants expect 25bps rate hike on Oct 29

The market expects RBI to increase the repo rate by 25bps as both retail and wholesale inflation have gone up since August

October 26, 2013 11:18 IST | India Infoline News Service
The Reserve Bank of India, who will unveil the monetary policy review next Tuesday, 29th October, is not expected to cut policy rates, according to market opinion.

The market expects RBI to increase the repo rate by 25bps as both retail and wholesale inflation have gone up since August. One basis point is one-hundredth of a percentage point.

WPI inflation for September rose to a 7-month high of 6.5% YoY and CPI inflation also surged to a 3-month high of 9.8% YoY.

The repo rate, the rate at which RBI lends money to banks, currently stands at 7.5 percent.

Kapil Wadhawan, Chairman & Managing Director, Dewan Housing Finance, said, “I hope RBI will send out a strong positive signal that there would be no further tightening and key policy rates may come down during the quarter.”

We expect RBI to stick to its anti-inflationary stance and hike repo rate by 25bps to 7.75%, while MSF to be cut by 25bps in the forthcoming Monetary Policy meeting, Upasna Bhardwaj, economist, ING Vysya Bank, added.

Assocham in a release said it submitted a 10-point agenda for RBI, which included easing of interest rates, liquidity, revising infrastructure growth and providing an impetus to investment. Widening of the financial market to develop a municipal bond market for funding urban infrastructure was also suggested.

On the other hand, realty players called for some concessional rates for home loans. It is imperative that RBI ensures affordable access to credit for Housing Finance Companies and other sectors, for growth of the economy, Wadhawan added.

CII suggested RBI send a signal that there would be no further tightening and the latter would move to a more accommodative monetary stance.

The market seemed poised for an increase in the repo and reverse repo rates and no change in the CRR rates in the long term, according to Royal Bank of Scotland's (RBS) RBI pre-credit policy client survey report.

"A significant majority of the respondents did not expect any change in the CRR (97.3%). However, more than half of the respondents (58%) expected at least a 25 bps increase in repo and reverse repo," RBS said.

The RBI, in the Mid-Quarter Review of Monetary Policy 2013-14 in September, hiked the repo rate by 25 bps to 7.5% and consequently the reverse repo rate stood at 6.5%. The central bank kept the CRR (cash reserve ratio) unchanged at 4%.

RBI Governor Raghuram Rajan, in his maiden policy review, reduced daily CRR requirement to 95% from 99% and maintained MSF (marginal standing facility) rate to 75 bps to 9.5%.

The rate hike, meant to control inflation, indicates that the RBI will continue to focus on price stability under Dr Rajan’s governorship. 

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