What do bankers expect from RBI tomorrow?

The RBI will decide whether or not to raise rates tomorrow when it meets to revise the monetary policy. This could make home loans more expensive or help savings fetch more. CNBC-TV18 held an extensive poll, and here is a report on what key bankers expect.

The RBI Governor may let go this time around. 68 per cent of bankers across a section of foreign, private and PSU banks polled by CNBC-TV18, believe that governor Y V Reddy won't raise rates on October 31 when he announces the mid term monetary policy. The balance 22 per cent are equally disparate, and they quote the governor's latest statement and say a rate hike cannot be ruled out.

Bankers who believe Reddy will hike rates this time, argue that despite a marginal slowdown, bank loans are still growing at nearly 29 per cent, and these are only likely to pick up now that the monsoons are over and the busy season starts.

Also, inflation is well over 5 per cent and can rise to even 7 per cent, given that the money supply is growing at 19 per cent compared to the RBI's target of 15 per cent. And of course, the inflation in asset prices is by no means doused.

OP Bhatt, Chairman of State Bank of India says, "Bankers who say that Reddy will not hike rates argue that crude prices have fallen since the last policy and inflation should logically slip and not rise. Also, US rates appear to have peaked and credit growth has actually slowed although very slowly."

But more importantly they point out that GDP is now way above the RBI's target of 7.5-8 per cent. So while the RBI had a money supply target of 15 per cent and credit growth of 20 to 25 per cent, these targets were when GDP was growing at 7.5 per cent.

Anil Khandelwal, CMD, Bank of Baroda says, "The consensus is that even if he doesn't hike rates, he will keep open the threat of a hike and hence, interest rates for you and me won't fall for sure."