Amid the growing fears of inflation, overshooting the RBI estimate of 6.5% for the year ending March 2010, the speculation of likely CRR (Cash Reserve Ratio) hike is doing rounds. The economy watchers are currently predicting an increase of 50 basis points (bps) in January, with a possibility of a 125-basis-point hike over the whole of 2010.
The estimated 50 bps hike is likely to put almost Rs 20,000 crores out of circulation, which is not likely to adversely influence the already excess liquidity of Rs. 100,000 crores. However, the experts argue that the shooting prices of food crops, is a supply-driven factor and a CRR-hike alone is not a sufficient measure for combating inflation.
Meanwhile, the banks have given the indications of a possible increase in the sub-prime lending rates on the corporate loans, which may put the damper on the credit off-take and consequently, industrial activity. In turn, the Government spending driven economic growth in the last quarter may not be repeated, retarding the pace of economic recovery considerably. Although, the draught has left the Kharif crops suffering, the late monsoon showers in the various parts of the country has given the policymakers hope for an encouraging Rabi (spring) harvest – a silver lining in the dark clouds.
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