Rate hike certain? – Bankers.

State Bank of India chairman O P Bhatt states, "Conventional wisdom says that there should be at least a 25 basis points hike in interest rates,"

Inspite of severe moderation for 2 weeks, the food inflation was on a 15.52% high which ended the 1st week of January’2011. The rise in the price of necessary items like vegetables, onions, tomatoes etc. Milk, eggs and other food products also faced a considerable high.

RBI Governor D Subbarao also expressed his grief of the poor man facing troubles claiming, ‘Some of the vegetable prices are still high’.
With a doubt in their minds whether the interest rates can check the price rise the analysts are still tightening the interest rates with the Central Bank seeming to have no other option.

Analysts suggest that the RBI could be of great help and take simple steps to ease the liquidity of the system.

Sources reveal that, HDFC Ltd Chairman Deepak Parekh said the RBI is expected to raise key short-term rates by 25-50 basis points.

"The RBI may be looking at an increase (of short-term rates) of 25-50 basis points... But I personally feel that interest rates are already high and it will impact the growth of retail loans and housing," Parekh said.

To conclude we could say that the food inflation has shot up. The indecisive rise in the food inflation rate has prompted the RBI to now strengthen the money supply by raising both borrowing and short term pending rates.

In 2010, the RBI raised the repo and reverse repo rates six times to 6.25 per cent and 5.25 per cent, respectively, to normalise the monetary policy, which was loosened to combat a slowdown in economic growth in the wake of the global financial meltdown in late 2008.

Source : Rediff.com/business.