RBI to face tough time in credit policy meeting

The Reserve Bank of India (RBI) will be holding a credit policy meeting. This meeting will be toughest for the governor Dr Yaga Venugopal Reddy, who have been on the post for a 4-year term and, for the RBI as the policy meet is being held at the time when economic worries continue to be a fever pitch. Inflation at a 13-year high with double digits with Industrial production have started looking shaky raising fears about growth.

Bankers now already have the idea of RBI’s inflation fighting measures expect the RBI to continue its focus on inflation, which can interpret into another rate hike.

Chanda Kochar Joint MD, ICICI Bank expressing his views on this said, "I think rates will continue to remain high given the current scenario."

In this credit policy meet bankers are predicting a 25 bps hike in repo rate while the key monetary indicators including money supply, credit and deposit growth will be not be in RBI’s target zone.

It is being predicted that hike in CRR will not be less than a 25 bps hike. Regarding liquidity it is expected to get better in mid-August with government spending and bond redemptions expected to pick up.

In banking industry there are still some who have hopes that RBI will not be hiking rates yet and will wait to see the effect of measures already taken before handing over another dose of rate therapy.

Commenting on this Sharad Shukla, CIO, Axis Bank said, "We are slowing down and we should probably take a stance of keeping interest rates stable and not compromise on growth. We are in a long term inflationary trend and if you want a positive real rate of interest, then some hike can be expected".

Scarce monsoon is also being looked up on to add to the RBI’s worries which can mean food price inflation can start pick up and add to inflation.

Even if the RBI decides for the time being to standby the economy another rate hike in this time's policy, then also the central bank's stand will remain a tough one and inflation will be in priority.