Ahead of the Reserve Bank's monetary policy review on Tuesday, bankers on Sunday said the central bank should

focus more on growth as the country cannot afford economic expansion of below 5 per cent. "The RBI could give a signal because it does not want growth to come below 5 per cent," HDFC Bank Managing Director Aditya Puri said. Attributing the marginal spike in September inflation to the diesel price hike, he said: "Yes, inflation has been high, but about 30 basis points of that is due to fuel price increase, so the actual number is only about 7.5 per cent. I am hoping for the best." Axis Bank MD & CEO Shikha Sharma said after the recent reforms which have a bearing on fiscal consolidation, the time has come for RBI to shift its focus towards growth by effecting at least a 0.5 per cent cut in cash reserve ratio (CRR). "While monetary policy needs to focus both on inflation and growth, given the recent fiscal measures, I think the leaning of policy right now needs to be on growth," she said. "We just can't afford to have growth being stopped below 5 per cent. Therefore, I would see CRRcut by 0.5 per cent," she added. Oriental Bank of Commerce's CMD S L Bansal is expecting a 0.25 per cent reduction in short-term lending or the repo rate as liquidity is comfortable now. The Reserve Bank's second quarter monetary policy review is scheduled for October 30. State Bank of India Chairman Pratip Chaudhuri said high interest rates are impacting employment generation and hence the need to lower rates for jobs creation. "I think in their policy making, the RBI should also take into account the employment numbers because now so many other countries have taken. Every country takes very serious note of the employment numbers," he said. Economic growth in the first quarter of the current fiscal had fallen to nine-year low of 5.5 per cent. The growth in factory output in August was also not encouraging as the Index of Industrial Production (IIP) expanded by a nominal 2.7 per cent only. RBI in its monetary policy have been maintaining that bringing down inflation is its priority. It last cut the repo rate in its annual policy by 0.5 per cent, a reduction after a gap of three years. Meanwhile, costlier diesel fuelled inflation to 10-month high of 7.81 per cent in September. StanChart senior economist Anubhuti Sahay said she sees a 0.25 per cent reduction in CRR

50 per cent. Foreign brokerage Morgan Stanley said RBI has little room for immediate rate cuts. "Given the slightly better domestic activity readings and lingering upside risks to inflation. while 49 percent of them see a 25-50 bps cut in CRR. Foreign lender HSBC also said RBI is likely to keep the key interest rates unchanged due to inflationary pressures.50 per cent to support economic activity." it said. the cash reserve ratio — the mandatory amount of cash deposits banks need to keep with RBI— and Statutory Liquidity ratio (SLR) have been cut by 1.. but may cut CRR. the last rate hike was exactly a year ago.25-0. it warrants a delay in policy rate cuts. Royal Bank of Scotland." HSBC said. 53 per cent of its 120 market participants don't see any rate cut.5 per cent cut in the CRR and leaving the lending rates unchanged.5 per cent in March this year. rather. "In light of the seasonal pick-up in credit demand. Rating agency ICRA also expects a 0. Analysts said while RBI continuously fought inflation with 13 successive rate hikes till October 2011." it added. although another CRR cut is possible.7 per cent. Since then.1 lakh crore apart from cutting the policy rates by 0.25 -0. space available for further monetary easing is likely to be limited. "With headline inflation expected to average 7.5-7.but is against tweaking the policy rates now given inflationary pressures on the economy." Icra said in a note. RBI has also injected liquidity through open market operations worth over Rs 2.. while CRR is 4. The repo or short-term lending rate at present is 8 per cent. "We believe the current macro environment provides little room for immediate rate cuts . in a client survey said. respectively. . Only 25 per cent see a 25 bps cut in the report.50 and 1 per cent. RBI may consider a further cut in CRR by 0. RBI is expected to keep the policy rates on hold.

Sign up to vote on this title
UsefulNot useful