State Bank of India expects RBI to Tighten Money
By arunr at 27 July, 2008, 9:00 pm
State Bank of India Chairman O P Bhatt today said he expects moderate monetary tightening in Reserve Bank of India’s quarterly review due next Tuesday. He indicated that the central bank could raise the cash reserve ratio, or the proportion of deposits that banks kept with RBI, by 25 basis points. The cash reserve ratio sets the tone for lending throughout the Indian economy; the higher the ratio, the less banks can lend out and the tighter credit is.
“It is very difficult to second-guess the governor, especially two days before the policy. When oil prices were at their peak, it was safe to assume further tightening… A final decision will be taken by the asset-liability committee after the RBI’s announcement,” he told reporters recently.
Since 2007, the RBI has increased the cash reserve ratio rate by 125 basis points to 8.75%, while the repo rate has been increased by 75 basis points to 8.50%. The Reserve Bank of India has also asked banks not to charge excessive interest rates on credit cards to protect customers and stem defaults. It has made it clear that the banks themselves would be liable for the misuse of unsolicited cards. On interest rates, the RBI wants banks to set ceilings on processing fees.
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