RBI likely to hike rates, to hurt growth: Parekh

RBI likely to hike rates, to hurt growth: Parekh

"The RBI may be looking at an increase (of short-term rates) at 25-50 basis points... But I personally feel that interest rates are already high and it will impact the growth of retail loans and housing," Parekh told reporters on the sidelines of 5th Global Summit of Vibrant Gujarat here.

Expressing doubts over taming food inflation through rate hikes, he said food inflation is a supply side problem and not a monetary problem.

"So, I would like to see interest rates to remain the same and the government tackling food shortage in a different manner," he added. Food inflation moderated, but still remained at elevated level of over 16 per cent for the week ended January 1.

"We have seen that inflation numbers are so high, mainly food inflation at 18 per cent (for the week ended December 25). However, there are statements from the government that it will come down to 7 per cent by March," Parekh added.

Parekh also wanted RBI to cut the requirement of banks to keep certain percentage of their deposits with the central bank, since the system is still facing a cash crunch.

"Liquidity is very tight now...Currently, banks are borrowing Rs 70,000 crore to Rs 80,000 crore from the RBI on a daily basis. That situation will get a little easier if half a percentage point CRR is reduced," he said.

CRR is a percentage of bank deposits kept with RBI in cash. He said bankers have gone and pleaded with the RBI to cut CRR. "We will have to see what the RBI does". The Reserve Bank has hiked short-term key rates--repo and reverse repo--six times last year, but pressed a pause button in its review in November, because of tight liquidity.
However, it had said that the move should not be interpreted as reversal of tightening monetary policy, since inflation is still a major problem.