RBI expected to hike repo rate by 25 bps: SBI

In an interview with ET Now, Anjan Barua, Deputy MD & Group Executive Global Markets, SBI, talks about inflation and RBI's credit policy. Excerpts:

ET Now: What’s the SBI expectation? Is it a quarter percentage point hike or are you somewhere expecting something more than that?

Anjan Barua: We are expecting around a quarter percent raise in the repo rate because the inflationary pressures are still there in the economy.

ET Now: Has the bond market factored in the 25 basis point hike or there is a possibility that the RBI could actually surprise and have a 50 basis point hike? Is that even a possibility that could be factored in?

Anjan Barua: A quarter percent would be okay, 0.5% we are not really expecting and the bond market like any other market, it is always ‘buy the rumour, sell the fact’, it always operates on that basis. So a quarter percent has been factored into the present yields.

ET Now: Have you seen a strong shift away from the bank market to the non-bank market in terms of the borrowings by way of corporate bonds among a lot of corporates? Is that something you are beginning to see as a trend?

Anjan Barua: If you look at the commercial paper figures, outstanding figures, it has really gone up of late. Corporate bond issuance is also there. Everyday there is some 500-700 crores is being issued by various corporates. So yes, they are tapping alternate sources because most of the base rate or banks are around nine quarter, 9.5 and above and the bulk of them or the banks are at 10%, so naturally corporates are tapping alternative sources of finance.

ET Now: Going forward for the coming few months if inflation carries on its ascent, what would be the impact of that on the bond market?

Anjan Barua: If you just look at the inflation, we will have to live with a slightly higher rate of inflation because if you are expecting GDP to grow at around 8.5-9% in the coming years, we will have to accept a higher rate of inflation in the economy. Now as regards this rate of interest, yes it is impacting credit growth but if you really go to these tier 2 cities, smaller cities in the country, you really do not feel that there is a slowdown in the economy at all. Recently I was in some tier 2 city for about 15 days and I found that on the street at any given moment, there will be 7-8 brand new cars with that Applied For board sticking onto it, so people are spending money. And you go to the malls, you go to the restaurants, that all indicates that really there is not much of a slowdown that we are talking about at this juncture.

ET Now: Given the fact that one year premium is ruling well above 5%, are you beginning to witness some sort of resistance among Indian corporates to borrow money overseas given that the borrowing costs actually goes up significantly on account of the hedging cost?

Anjan Barua: No inspite of that, we have seen corporates raising funds abroad and bringing them in. Last week for one of our corporates, we have converted over $500 million into rupees and that was some sort of a bond that they have raised money abroad and brought it into the country, so it is still going on.