Will the Reserve Bank of India (RBI) continue with its money-tightening measures at the annual monetary policy review meeting on Tuesday? Though bankers are not ruling out another round of rate hike in the future, they don’t expect the central bank to press the hike button this week as the banking system is yet to fully reflect the past actions of the RBI.

RBI officials have already expressed their intolerance to the current inflation levels. But what’s adding to the problem is the rise in capital flows to India. “Rising capital flows and high credit offtake will continue to vex the central bank. But this can be tackled over a period of time. Indications have already come about restricting inflows from external commercial borrowings. There could be further tightening of loans to sensitive sectors,” said a senior banker.

Tarini Vaidya, country treasurer of Centurion Bank of Punjab said, “I don’t think the RBI will increase the rates in the credit policy. It will wait and see the impact of the past actions. As the situation is very fluid, the RBI is likely to act according to the prevailing situation. I feel the RBI is likely to maintain its hawkish stance on various issues...” The central bank has already made three rounds of hikes in short-term rates in the last one year. The second phase of CRR hike announced on March 30 will come into effect only on April last week.

With the inflation level ruling above the six per cent level and the liquidity level still high, banking analysts don’t think the RBI is through with its measures. “The RBI will remain hawkish. But it’s likely to maintain cash reserve ratio, reverse repo rate and statutory liquidity ratio at the current levels on Tuesday. At the most, the RBI might increase the repo rate as the spread between repo and reverse repo rates has increased,” said Sarika Purohit Lohra, banking analyst with Angel Broking.

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