RBI unlikely to hike rates anytime soon, here's why

The Reserve Bank of India (RBI) opting for status quo in key policy rates was on expected lines and the central bank is unlikely to hike rates anytime soon, analysts said Wednesday. "The possibility of another rate hike this fiscal appears to be low," ratings agency Crisil said after the release of the fifth bi-monthly policy, in which the rate setting panel kept the repo rate unchanged at 6.50 per cent.

The agency said maintaining the "calibrated tightening" stance will not have any impact. Its smaller rivals India Ratings and Icra also concurred, saying a rate hike is unlikely in the near term.

"So long RBI does not get convinced about the sustainability and continuance of the low inflation rate witnessed currently, it is unlikely to change its policy stance from calibrated tightening to neutral," India Ratingssaid in a note.

It said RBI's concerns on inflation emanate from sudden spike in the price of perishables, risk from revision in minimum support prices (MSPs), which has yet not played outfully, crude oil prices, global financial market volatility, fiscal slippages and staggered impact of HRA revision by state governments.

Icra said the proposal to link banks' lending rates on new retail and MSME loans with external bench marks is expected to improve the transparency in loan pricing by banks as the existing benchmarks, especially the base rate, have not led toa full transmission of the benefits of decline in cost of funds for banks' to borrowers. It added profitability of banks may see a higher volatility, unless they are able to raise floating rate deposits linked to external benchmarks.

On the cut in statutory liquidity ratio, it said the action will have a relatively more positive for private sector banks as their SLR holdings are closer to regulatory requirements, as against public sector banks.

"Notwithstanding the already high credit-deposit ratio, the proposed cut raises the ability of private banks tode ploy their deposits in higher yielding loan assets. Public sector banks on the other hand will need to shore up their capital position to pursue credit growth and benefit from the lower SLR requirements," it said.