RBI to hold rates if inflation eases

An increase in the Cash Reserve Ratio (CRR) can be followed by a hike in repo rate by the Reserve Bank of India (RBI). But the inflation figures that emerge this week will determine whether the central bank opts to increase repo rate. If the inflation rate shows signs of easing up, the RBI may prefer to maintain status quo. At present, the repo rate stands at 7.75 per cent while the reverse repo rate is 6 per cent.

Public sector banks have indicated that they revise their prime benchmark lending rates upward, even as finance minister P Chidambaram indicated earlier that banks should try and cut rates.

The latest hike in CRR by 50 bps to 8 per cent is expected to suck out about Rs. 18,500 crore from the system. Banks earn no interest on the CRR. Bankers will raise the matter of upping interest rates in their meeting with Chidambaram on May 1.