Union Bank sees RBI hiking rates

NEW DELHI: Union Bank of India CMD M V Nair said on Thursday that there is a strong possibility of the Reserve Bank hiking interest rates at its July 27 policy review, as inflation is still very high.

"There is a clear bias for the policy rates to move up for the reason that inflation is still very high and inflationary expectation is to be contained. The bias is going to be upward," Nair, who is also a former chairman of the Indian Banks' Association, said on the sidelines of a BSNL function.

Inflation is currently in double digits, led by high food prices. For the month of June, it stood at 10.55 per cent.

Although data released today shows that food inflation had eased marginally to 12.47 per cent for the week ended July 10, experts believe it may not stop the RBI from hiking short-term rates in its monetary review.

"As of now, there is a liquidity shortage to the extent there is a possibility that it may get translated into interest rates going up," said Nair.

He said if the deposit rates go up at the time when the bank revisits its base rate, which is every quarter, lending rates would rise. The banker said there were indications of interest rates going up during the current year.

"... At that point in time, if the funding cost goes up, then the base rate will go up. During the year, there is a clear bias for interest rates to move up," he said.

RBI had already raised its short-term rates by 25 basis points earlier this month to cool down inflation. It will review its monetary policy on July 27.

Earlier, Finance Minister Pranab Mukherjee had exuded confidence that food inflation will moderate after new crops arrive in the market.

Cabinet Secretary K M Chandrasekhar had also said that inflation will drop in the coming months on the back of a good monsoon and prospects of a better crop yield.

Speaking about the performance of Union Bank in terms of net interest income, Nair said that it is going to be "robust" in the first quarter of this fiscal.

"We expect net interest margin for the first quarter to be closer to 3 per cent," he added.