RBI to hike repo, reverse repo rates in April

The Reserve Bank of India is likely to increase its short-term interest rates by April as part of its strategy of exiting from the easy money regime, Deutsche Bank said on Tuesday.

"Our assessment is that the RBI will hike the repo, reverse repo rates by April," Deutsche Bank's head of equities, Pratik Gupta told reporters in Mumbai.

In January, the RBI hiked its cash reserve ratio or the amount banks keep with the central bank by 0.75 per cent to 5.75 per cent to absorb around Rs 36,000 crore (Rs 360 billion) excess money from the system.

Repo is the rate at which the central bank lends short-term funds to banks and reverse repo rate is the rate at which it accepts deposits from banks.

The apex bank is set to announce its annual monetarypolicy for the financial year 2010-11 on April 20.

Commenting on the likely trend in the capital market in 2010, Deutsche Equities' Head of Research, Abhay Laijawala said that the bank has forecast that the benchmark Sensex will touch 22,000 level by the end of 2010.

"We have an overwhelmingly positive outlook and believe that the consumption plays such as autos, metals, paints and private sector banks as well as infrastructure and software will perform well during the year," Laijawala said.

On the back of economic revival, foreign investments into the domestic market are set to rise in the months ahead. Also, investments into the infrastructure segment are likely to improve supporting the long-term growth, he said.

"The next leg of market re-rating could occur when the investment cycle makes a decisive comeback. Examples include further evidence of strong demand and Government intent on developing national infrastructure," Laijawala said.

Deutsche is organising a three-day investor conference in Mumbai beginning today, around 350 investors and 90 Indian firms are participating in it.