RBI likely to raise CRR by mid-Jan: J&K Bank

NEW DELHI: The Reserve Bank may raise the amount banks need to park with the apex bank (CRR) by up to 50 basis points in the second week of January to suck liquidity from the system, Jammu & Kashmir Bank Chairman Haseeb Drabu said on Sunday.

"Currently the liquidity conditions (are tight)...because of the advance tax flows. Once that money comes back into the system you will see a liquidity flush. The RBI may actually start pumping out liquidity through a hike in cash reserve ration (CRR) by around 25-50 basis points," Drabu said on the sidelines of a function here to launch J&K Bank calendar for 2010.

Moreover, Drabu added, the macroeconomic indicators do point to a hardening of interest rates in the days ahead.

The Reserve Bank is slated to come out with the third quarter review of the monetary policy on January 29 amid intense speculations that it may signal an interest hike to tighten money supply to contain the rising inflation.

Drabu, also a noted economist, however, said tightening of liquidity by RBI through hiking CRR or even raising repo rate might not immediately impact the banking sector's interest rates as the market has already factored in such possibilities.

"I don't think interest rate would change dramatically or instantly after RBI action...I don't see banks' lending will change in response to either a CRR hike or even a repo rate hike," he added.