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Indian shares were little changed ahead of the credit policy meet and amid
flat global cues, as investors prefer to wait for the central bank's decision on
interest rates in its battle against rising inflation.
The Reserve Bank of India (RBI), which on April 17 raised the cash reserve
ratio (CRR) by 50 basis points to 8 percent to drain about 185 billion rupees
($4.6 billion) of excess liquidity from the system, is likely to unveil a slew
of measures today to tackle inflationary pressures and the economic
slowdown in its annual monetary policy report for 2008-2009.
Mr B. Sambamurthy
April 17 Reacting to the 50 basis point increase in the Cash Reserve Ratio,
bankers said that given the inflationary spiral, the move by the Reserve Bank of
India was quite expected. Perhaps the timing was a bit of a surprise. They
expressed apprehensions that the move would affect their margins to some
extent and they may be forced to pass on the cost to the customers. However,
they would wait for the Credit Policy statement due on April 29 before taking a
decision on increasing lending rates.
Mr K. Ramakrishnan
Mr S.A. Bhat, Chairman and Managing Director, Indian Overseas Bank, said that
his bank’s ALCO (Asset Liability Management Committee) would decide about the
hike in interest rates. However, he pointed out that the hike in CRR would
increase his cost of funds by only about 10 basis points. He said that this did not
necessitate any increase in their prime-lending rate which was at 13.25 per cent.
Since the PLR was not cut earlier, there was no need to hike it now, he said. He
also felt that since inflation was more supply-side driven than due to demand
side pressures, he felt the CRR hike may not be fully able to achieve the
objective. He said that the RBI may have to consider steps to disincentivise
lending to some sectors such as real estate, stock market and traders who were
hoarding commodities.