Interest rate hike may be counterproductive: RBI
The papers have been issued at a time when several commercial banks have expressed the view that there should not be any further hike in short term rates .
By PTI |
MUMBAI: Ahead of its quarterly policy review, Reserve Bank has expressed doubts on the efficacy of "pre-emptive" raising of interest rates to prick a housing bubble.
"...There is a need to carefully evaluate consequences of monetary policy actions, especially when the housing market is seized by price bubbles. Raising interest rates more than what is required for overall price stability purposes may prove to be counterproductive," the RBI said in "Occasional Papers."
Such a policy could also be potentially damaging for other sectors in the economy, the central bank said in a chapter on "Identifying Asset Price Bubbles in the Housing Market in India-Preliminary Evidence."
The papers have been issued at a time when several commercial banks have expressed the view that there should not be any further hike in short term rates to contain inflation, which has crossed five per cent mark.
The bankers argue that with oil prices falling and seasonal factors tapering off, the Reserve Bank should not hike rates as it may impede high growth momentum.
The RBI study said, direct measures taken for demand compression may be less worthwhile than sectoral measures such as withdrawing or reducing regulatory accommodation.
As a preemptive measure, the RBI in its annual policy statement for the current fiscal had increased general provisioning for residential housing beyond Rs 20 lakh and commercial real estate from 0.40 per cent to one per cent.
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