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RBI unlikely to touch interest rate in mid-term review

MUMBAI, OCT. 24. With banks reporting a strong credit demand, the Reserve Bank of India (RBI) is likely to keep key interest rates untouched in the mid-term review of its annual policy for 2004-05 to support industrial growth.

However, in its policy review on Tuesday, the RBI likely to revise the inflation estimate upwards and peg economic growth at lower level due to less than expected monsoon and rise in prices of oil products and commodities, analysts say.

Though the rise in inflation gives strong indication for the need to hike interest rates like bank and repo rate, bankers are of the view that the RBI may not opt for any upward revision in rates to sustain the recent pick up in the demand for credit from industry.

Any hike in rates would be a signal to increase lending rates which may adversely impact the investment sentiment, they said adding, the RBI had left the bank rate and repo rate unchanged at six per cent and 4.5 per cent respectively in policy announced in May.

However, the Delhi-based National Council for Applied Economic Research (NCAER), in its recent report has said that the RBI was expected to hike rates by 0.5 per cent in its busy season credit policy due to concerns on inflation. Analysts said that financial system had still sufficient liquidity to postpone any hike in interest rates.

Inflation front

On the inflation front, analysts said the soaring global crude oil prices would make the RBI to revise its estimate upwards from five per cent projected in May.

The average inflation measured by wholesale price index for the first half had been above 6.5 per cent but the upward revision would not be that drastic since the base of second half of last year was low, they added.

Private banks

About the RBI's draft proposal to place restrictions on foreign ownership in Indian private banks, analysts said the policy review may elaborate on revision to its earlier draft norms.

The RBI has received feedback on its first draft which had placed a restriction of 10 per cent on the foreign investment while the Government appeared to be in favour of higher limits, they added. — PTI

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