Interest rates may rise by 25-50 basis points: SBI

Liquidity pressures to top agenda of RBI’s meeting with bankers.

With inflation remaining at elevated levels, banks are bracing for an up to 50-basis-point increase in key policy rates. State Bank of India (SBI) Chairman O P Bhatt said the Reserve Bank of India (RBI) might raise interest rates by 25 basis points soon. Banks are waiting for the monetary policy review on January 25 for further indication. Seconding the SBI chairman’s outlook, Crisil Chief Executive and Managing Director Roopa Kudva said there was a general expectation that the rates would be raised considering the current rate of inflation. RBI was likely to raise the repo and reverse repo rates by 50 basis points in the next six to nine months, she added. RBI has been in the rate hardening mode since the fourth quarter of 2009-10. So far in the current financial year, the central bank has increased policy rates by 125-175 basis points to check inflationary pressures. RBI has said policy transmission improves if liquidity in the banking system is in the deficit mode. Tight liquidity has prompted several banks to raise deposit rates many times. They have also increased lending rates, but at a slower pace.