India's RBI hikes CRR by 50 basis pts, keeps other key rates unchanged UPDATE

India's RBI hikes CRR by 50 basis pts, keeps other key rates unchanged UPDATE

	Published : Tue, 30 Oct 2007 09:03 By : Agencies Print this Story

(Recasts lead, adds details throughout)

MUMBAI (Thomson Financial) - The Reserve Bank of India has hiked the cash reserve ratio (CRR) for banks by 50 basis points to 7.50 pct to control the surging capital inflows into the country.

The Indian central bank, however, left unchanged the key bank interest rate at 6.0 pct, the repo rate at 7.75 pct and the reverse repo rate at 6.00 pct.

According to the latest data available from the RBI, India's foreign exchange reserves have risen to 261.1 bln usd as of October 19, a rise of over 62 bln usd in the current fiscal year.

The bank has retained its GDP growth forecast for India for the current fiscal at 8.5 pct, assuming there will be no further rise in international crude prices. Crude oil prices are currently hovering around the 93 usd per barrel mark in international markets.

The RBI said it will now permit Indian oil companies to hedge their foreign exchange exposures to the extent of 50 pct of their inventory volume as at the end of the previous quarter by using overseas over-the-counter (OTC) or exchange-traded derivatives up to a maximum of one year forward.

The central bank dispelled fears on the inflation front and said it expects to contain the inflation rate at around 5.0 pct during the current fiscal. It, however, added that the risks to inflation and inflation expectations would continue to demand priority in policy monitoring over the next twelve to eighteen months.

RBI said it would set up a working group to finalise norms for cross-border supervision and cooperation with overseas regulators, consistent with the framework envisaged in the Basel Committee on Banking Supervision.

'The most important issue for India is the possible impact of global financial market developments and policy responses by central banks in major economies..the immediate task for public policy in India, therefore, is to manage the possible financial contagion which is in an incipient stage with highly uncertain prospects of being resolved soon,' RBI said.

Commenting on the recent turmoil in the international markets, the Indian central bank said the unusual volatility and liquidity crunch was due to the significant mis-pricing of risks in the global financial system with rising default rates from sub-prime mortgages in the US acting as the trigger.

TFN.newsdesk@thomson.com

aka/man/jag

The copying, republication or redistribution of Thomson Financial News Content, including by framing or similar means, is expressly prohibited without the prior written consent of Thomson Financial News.