Rate hike buzz in run-up to credit policy

To back up its predictions, NCAER has said that inflation has already crossed 7% and is likely to stay that way for some time. Besides, it says oil prices are rising and have ‘‘frightened’’ the bond market, while the monsoon has been poor.

What’s more, it expects more demand for credit from the private sector and asserts: ‘‘There is no way an increase in interest rates can be prevented.’’

Others are not so certain, however, that RBI Governor Yaga Venugopal Reddy will raise the rate from its current 6%. The big question is whether raising the rate will hit growth — an argument that NCAER rejects but RBI may take more seriously.

‘‘While depositors will like to see their interest rates going up… borrowers want low interest rates. As a banker, I will prefer stability in interest rates,’’ said K Cherian Verghese, Chairman and MD of Corporation Bank.

He may not get his wish. Just last week, RBI cancelled a Rs 5,000-crore bond auction amid speculation that it was preparing for a rate hike. Bankers agree there is a lot of pressure to push the rate upward, though whether the Central bank will do so is another matter.

‘‘RBI will have to do a lot of balancing,’’ said A K Purwar, chairman, SBI.

The credit policy will be closely watched as bankers wonder whether the bank rate will go up and whether RBI will tinker with the repo rate (repurchase rate on government securities).

There are other expectations too. With forex reserves at $ 119 bn, some are wondering whether the RBI will start lending to corporate entities from this kitty.