RBI likely to hike interest rate by 25 basis points: OP Bhatt

NEW DELHI: State Bank of India chairman OP Bhatt expects the Reserve Bank to raise its key policy interest rates by at least 25 basis points in the forthcoming quarterly review to tame inflation.

"Conventional wisdom says that there should be at least 25 basis points hike in interest rate" Bhatt said on the sidelines of an event in New Delhi.

RBI is scheduled to unveil its third quarterly review of monetary policy on January 25.

Food inflation for the week ended December 25 stood at 18.32 per cent, while core inflation during November was 7.48 per cent putting pressure on RBI to raise policy rates.

"My personal view is that with things going on in the economy if you look at what has happened to the stock market, if you look at uncertainty and concerns...if interest rate is hiked at this point of time they might add to (problems)," he said.

On the other hand, he said, "If you look at inflation, if the interest rate is hiked at this point of time it would not dampen inflation...my personal view is that interest rate can be hiked any time."

All the think tanks in the country is saying that inflation should come down to 7 per cent by March, he said, adding, some of the price rise are structural.

In terms of absorbing the increase by the RBI, Bhatt said, "Market sentiments is such that 25-50 basis points it can absorb."

Meanwhile, bankers requested the Reserve Bank of India to slash the CRR and SLR in its upcoming Third Quarter Review of Monetary Policy 2010-11 on January 25, besides keeping the key policy rates unchanged amid tight liquidity situation and rising credit demand.

After the customary pre-policy meet with the central bank yesterday, Indian banks Association Chief Executive R Ramakrishnan had said bankers demanded reduction in both the cash reserve ratio (CRR) and the statutory liquidity ratio (SLR).

They said it will help in tiding over the tight liquidity situation and poor deposit growth, as the credit offtake is growing above the industry's and RBI's own estimates.

"We requested RBI to slash both the CRR as well as the SLR (amount of prudential reserves that banks keep in the form of government securities, bonds, etc), even though we admit that inflation is a big concern. We see inflation at 7 per cent by the fiscal-end. However, this is 50 basis points (bps) above RBI's estimates for this fiscal," Ramakrishnan said.

At present CRR -- the mandatory cash balance that banks park with the RBI -- stands at 6 per cent, while SLR stands at 24 per cent.