Date:04/04/2007 URL: http://www.thehindubusinessline.com/2007/04/04/stories/2007040405380600.htm

Back Another CRR hike unlikely: I-Sec

Our Bureau

Chennai April 3 An ICICI-Securities (I-Sec) report on the recent monetary policy measures said that the chances of another CRR hike in this quarter would be low, given the fact that the first quarter in the fiscal is seasonally slow for forex inflows.

But there is a 50-50 chance of another 0.25 per cent hike in the repo rate at the time of the April policy, I-Sec said. Adding that the next three inflation readings would be critical, it said, "Should headline inflation fail to come below 6 per cent, and manufacturing inflation continues to rise, RBI may be compelled to nudge repo rate once more, to show its commitment to containing inflation."

The repo rate hike of 0.25 per cent to 7.75 per cent was meant as a signal that the RBI is not done with the hiking of rates, I-Sec said in its report.

I-Sec interpreted the recent move to hike CRR by 0.5 per cent as a need of the RBI to act swiftly to prevent liquidity conditions from easing — that was possible given the bunched-up government spending around the fiscal year-end. This likely triggered the move, the report said.

The report said that the borrowing calendar for the new fiscal had a higher proportion of 10-14 year bonds, noting that the supply was tailored keeping in mind the banks' SLR demand.

Along with the RBI's concern over credit growth, this implies that the central bank is in no hurry to cut SLR requirements, the report said.