RBI Governor Y V Reddy has a difficult balancing act to perform as peaking interest rates have begun impacting the high growth momentum while the liquidity problem is being aggravated by surging forex inflows.

While some bankers and economists expect a marginal cut in key short-term rates, others feel the RBI might not do so in the face of inflationary expectations looming large due to surging global oil prices. With interest rates having peaked and inflationary pressures still persisting, the RBI is not expected to tinker with the rates, they said.

Analysis
The apex bank might, however, reduce the difference between the repo and reverse repo rate, even as it signals a stable interest rate regime while it would be a toss-up as far as a cash reserve ratio (CRR) hike was concerned, they said.

“There are no domestic compulsions calling for change in monetary policy. I expect nothing dramatic,” Crisil’s Chief Economist Subir Gokarn said. “A CRR hike is a possibility but there is just an outside chance that the RBI might not effect it this time,” Yes Bank’s Chief Economist Shubhada Rao said. Kotak Mahindra Bank’s MD Uday Kotak said he expected “A flat and benign policy” in the light of the steps taken by Sebi for checking inflows into the country through Participatory Notes (PNs).

They highlighted the comfortable liquidity position presently to support their contention. With liquidity inflows slowing down in last ten days, RBI might want to wait and watch for now before deciding on a CRR hike, they said. But none ruled out a hike totally in the future.