Industry sees 25 bps rise in policy rates, says survey

Mumbai: An industry poll conducted by RBS India today said majority participants are expecting RBI Governor Raghuram Rajan to hike the key policy rates by at least 0.25 per cent next week when he unveils the second quarter review of Monetary Policy 2013-14.

“More than 55 per cent of the respondents are expecting a 25 bps hike in the repo rate in this policy cycle, and a similar hike in the reverse repo rate as well,” RBS India said in a pre-policy survey.

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The RBS client survey covered 150 local market participants, including corporate clients, banks, insurancecompanies and mutual funds among others and 56 per cent of the responses came in from corporate clientele and rest from financial institutions.

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Nearly everyone (97 per cent) expects the Governor to leave the cash reserve balance requirements unchanged at 4 per cent, it said.

In the mid-quarter review, the Reserve Bank had increased the repo or the rate at which it lends to banks by 25 bps to 7.5 per cent, while also partially reversing the July 15 tightening steps by reducing the MSF gap by 75 bps to 9.5 per cent.

The reverse repo is currently pegged at 6.5 per cent, while the repo is 7.5 per cent. One basis point (bps) is equal to 0.01 per cent.

The survey said the market expects the rupee to remain in the range of 59-64 in the medium term. Around 42 per cent see the rupee strengthening to below 62 to the dollar by December end, while only 35 per cent expect the same by March.

Around 89 per cent expect CRR to remain unchanged while 5 per cent expect a 25 bps cut by March. Around 65 per cent expect at least a 25 bps hike by March 2014 while around 18 per cent expect no change.

PTI