Biggest Indian Bank Predicts RBI Will Raise Benchmark Rate

India’s central bank is set to raise the benchmark repurchase rate and cash reserve ratio at its meeting tomorrow in a move to defend the rupee, according to the chairman of the nation’s biggest lender.

The Reserve Bank of India increased the bank rate and the marginal standing facility rate to 10.25 percent from 8.25 percent on July 15 and last week capped its funding support to lenders and raised their daily cash reserve requirements after the rupee dropped to a record low of 61.2125 a dollar on July 8. It has kept the benchmark repo rate unchanged at 7.25 percent, while the cash reserve ratio is at 4 percent.

“As of now, the effective repo rate in India is 10.25 percent and cash reserve ratio is 4.25 percent,” State Bank of India Chairman Pratip Chaudhuri said in an interview to Bloomberg TV India. “What is de facto now may become de jure.”

Chaudhuri’s views contradicts 31 of 32 analysts in a Bloomberg News survey who predict no change to the benchmark rate, while 29 of 30 expects the cash reserve ratio to remain unchanged at 4 percent. The decision is due at 11 a.m. tomorrow.

The rupee, which has weakened about 8.5 percent against the dollar since March 29, fell 0.5 percent to 59.3487 as of 2:32 p.m. in Mumbai today.

The 12-stock CNX Bank index retreated 1 percent in Mumbai, bound for its lowest close since Sept. 13. State Bank dropped 1.3 percent to 1,743.05 rupees, extending this year’s slide to 27 percent. HDFC Bank Ltd., the biggest lender by value, fell 1.1 percent to 636.9 rupees, its fourth day of losses.

Overseas Funds

Global funds have reduced holdings of Indian debt by $8.9 billion since May 22, when the U.S. Federal Reserve signaled it could curb asset purchases that have stoked demand for emerging-market assets. The Fed will start trimming bond purchases in September, according to a Bloomberg survey of economists.

The International Monetary Fund said last week that exiting from the quantitative easing program could spur excessive interest-rate volatility and have “adverse global implications.” Fed Chairman Ben S. Bernanke has said it’s “way too early to make any judgment” as to whether policy makers will start tapering in September.

Reserve Bank Governor Duvvuri Subbarao has cut the repo rate three times this year.

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