The Reserve Bank of India is likely to announce a "gradual" exit from its easy money stance and may resort to raising key rates to squeeze out excess liquidity from markets in its forthcoming review meeting, investment banking firm Barclays Capital says.
"We now expect the RBI to start withdrawing liquidity by raising the CRR by 50 basis points in the January credit policy review," Barclays capital analysts Peter Redward and Rahul Bajoria said.
Barclays capital expect a 50 basis point hike in the repo and the reverse repo rates in the first quarter of 2010, with 25 basis points possibly coming as early as on the January 29 credit policy review.
"To temper expectations of an aggressive tightening cycle, we could see the RBI signal a gradual shift towards a neutral stance in the coming months in its monetary policy statement," the report said.
According to Barclays Capital there could be a total of 100 basis point hike in CRR by the end of the first quarter of 2010.
"We remain comfortable with our longstanding expectation of 150-200 basis point of hikes in the CRR, 175 basis point of hike in the repo and 125 basis point of hike in the reverse repo rate by the end of 2010," Barclays Capital said.
