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Apr 20, 2010 at 08:59am IST

New credit policy may hike interest rates

New Delhi: The Reserve Bank of India will come out with the new credit policy on Tuesday with experts warning of another increase in interest rates.

Inflation is nearly 10 per cent the economy is growing at over 7 per cent, It is a combination that is likely to cue the RBI to raise interest rates in Tuesday's monetary policy. A quarter to half per cent hike is on the cards.

"I think the primary driver for RBI's policy will remain what it can do with inflation rate and how quickly it can bring it down, especially non food inflation and I think as long as that keeps sticking up and that does not show signs of coming down soon, I think that will be the driver for RBIs policy," says JP Morgan Chief Economist Jahangir Aziz.

Swift moves by the RBI and the government to fight the slowdown means there's liquidity in excess of Rs 50,000 crore in the economy. If the central bank hikes the cash reserve ratio by half a percentage point, Rs 22,500 crore will be pulled out of the system.

"RBI always preferred to move in a calibrated fashion. So keeping that in mind, you'd think that they would probably, opt for a more subdued 25 BPS but offset that a with more aggressive 50 BPS on CRR. So we are looking at 25 on repo and reverse repo and a 50 on CRR," says Sonal Varma of Nomura Securities.

Rate hikes are aimed at fighting inflation and high liquidity, but banks will pass it on to the customer if RBI tightens its grip. So get ready, you might need to pay more for your home, car and personal loans.

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