RBI hikes CRR & Repo rate
The Reserve Bank of India (RBI) gave a surprise whack to Indian markets on Friday; as Business Standard reports, it “raised the cash reserve ratio (CRR) 50 basis points to 6.5 per cent from April 28 and the repo rate 25 per cent to 7.75 per cent with immediate effect”.
Why, you say? To contain inflation, of course: The central bank’s monetary tightening measures followed release of data that showed wholesale price inflation at 6.5 per cent for the third week in succession, ending March 17, 2007.
But how about the timing - Friday evening, after market close? A nice strategy to avoid end-of-the-week panic selling? Or perhaps give everyone the weekend to mull things over & take it easy on Monday? With the usual end-of-the-financial-year liquidity issues out of the way today (March 31st), we will soon find out how banks respond to this: my guess is that we won’t see much change in deposit rates (except the fixed deposit “deals” being withdrawn), but will see a rise in lending rates.
Note that Bloomberg did suggest a few weeks ago that the RBI would hike rates earlier than expected; and an interviee at MoneyControl yesterday (can’t remember who) said that the rate hikes have finally started to impact credit growth. The complaints have started:
Hero Honda, India’s biggest motorcycle maker, said sales growth is slowing because rising interest rates are discouraging consumers. “Sales in March is likely to be flat because of the steep jump in interest rates,” said Ravi Sud, Hero Honda’s chief financial officer. “The motorcycle market is slowing down.”
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