Expectations high for policy rate increase today

* Rupee strengthens against the dollar


With the IMF preferring to see monetary policy adjustments to contain credit growth, currency dealers are expecting a policy rate hike today after Treasury Secretary Dr. P. B. Jayasundera made a public statement that another 50 basis points increase to key rates could stabilise the economy, but some believe rates would be left unchanged by the Central Bank.

Some dealers are expecting policy interest rates to increase by as much as 100 basis points when the Central Bank announces its Monetary Policy stance today ahead of the long weekend.

"Considering where the 12-month Treasury bill rate is at the moment, and the fixed deposit rates offered by commercial banks, there is space for the

Central Bank to increase policy rates by 200 basis points, so a 100 basis points increase would be a conservative guess. However, Dr. P. B. Jayasundera’s comments to Reuters has created expectations for a 50 basis points increase," a currency dealer said.

 "Since we have already raised policy rates by half a percent (in February), maybe another 50 basis points upward revision could stabilise the whole macro economic environment," Dr. Jayasundera had told Reuters.

"Right now is not the time. We must wait for the April data and look at the adjustments that have taken place, and then take a policy decision that will maintain the compatibility of the interest rate and the exchange rate."  Preliminary figures for April should be available to policymakers by early May. 

Some currency dealers however, read into this Reuters report differently, and expect no changes to monetary policy rates today.

The IMF earlier this week said it preferred to see some monetary policy adjustments, rather than tax increases to curb import growth to contain a balance of payments issue.

Meanwhile, the rupee continued to gain against the dollar, closing at Rs. 125.40/50 yesterday from an opening of Rs. 126.15/30.

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