With inflation crossing 8 per cent, economists and bankers seem divided over whether RBI would once again ask banks to keep more cash with the central bank to squeeze liquidity from the banking system.
"The dilemma between rising inflation and slowing growth will continue and we expect the central bank to tighten monetary policy using CRR hikes rather than repo rate hikes" said Lehman Brothers India Economist Sonal Verma.
"We expect another 100 basis points worth of CRR hikes during the course of the year with unchanged repo and reverse repo rates," she said.
However, bankers have divergent view on the issue of CRR hike. Most bankers are of view that raising the ratio was not the viable option to ease inflationary pressure as it was not driven by money supply.
According to Oriental Bank of Commerce Executive Director Allen C A Periera, high inflation is on account of rising crude oil prices and food prices. So, further tightening of money supply would not have much impact in bringing down inflation.
With the expected good monsoon and fiscal measures taken the by the government, inflation is likely to ease in the coming months, he said.
Finance Minister’s adviser Subhashish Gangopadhyay had said, "inflation rate is higher than what we want it to be and raising interest rate is not the best way to curb inflation."
However, according to a study by financial services major Barclays Capital, RBI is likely to surprise the market by tightening money supply to combat inflation, which would push interest rates up.
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