RBI bid to prop up may hike interest rates

Mumbai: Interest rates are likely to inch up and growth prospects may worsen with the Reserve Bank of India (RBI) introducing additional measures to make money scarce in its attempt to prop up the rupee. 

    The RBI on Tuesday limited its overnight lending to half a percentage point of a bank's deposits on any given day and also announced out of turn auction of Rs 6,000 crore worth of bonds. 
    The RBI's third measure requiring banks to maintain cash reserves on a daily basis as against an average fortnightly balance earlier will force banks to set aside a cash buffer every day. 
Sensex closes at 30-month high L ed by ITC and Hindustan Unilever, the sensex gained 143 points on Tuesday to close at a two-and-a-half - year high of 20,302. Strong rallies in other top markets with several of the leading indices at multi-year high, too powered the rise. P 15 'RBI willing to sacrifice growth for Re stability' 
Mumbai: The second round of RBI's measures to tighten money flow was announced late in the evening on Tuesday, a day the rupee weakened by 5 paise to close at 59.77. At current levels the domestic currency is a mere 12 paise stronger from the day RBI announced measures. 
    "Given RBI's serious intent to keep the rupee under control it looks like the measures may continue for some time. Corporates will feel the first impact on commercial paper rates. Banks that depend on wholesale funds will also pass on their higher cost of borrowing to their corporate customers," said the chief of a public sector bank. Bankers feel that part of the reason for the second measures could be the build-up of sentiment in forex markets that the rupee would continue to weaken. The second set of measures came just over a week after RBI caused shortterm rates to firm up by limiting its lending to banks. 
    "The follow up measures taken today clearly indicate that there is a firm resolve to tackle any speculative activity in the forex market. It also shows that RBI is willing to sacrifice everything including growth to manage the currency," said Ashish Vaidya, head of fixed income currency and commodities at UBS. TNN