Wednesday 23 January 2008

State Bank Says Reserve Bank May Hold Rates

India's central bank may hold its benchmark interest rate steady in the next monetary policy review, State Bank of India Chairman O.P. Bhatt said.

``It may not go up. It may remain the same,'' Bhatt told reporters in Mumbai today. ``A rate cut in the U.S. does not necessarily mean the rates should be cut in India. Factors are different.''

The U.S. Federal Reserve yesterday cut rates by 75 basis points to 3.5 percent in an emergency move amid increasing signs of a recession in the world's biggest economy. A basis point is 0.01 percentage point. India's central bank holds its next monetary policy meeting on Jan. 29.

The central bank raised interest rates nine times since October 2004 to contain inflation in an economy forecast by the government to grow at least 9 percent for a third straight year. It also raised the requirement for cash reserves at commercial banks to a six-year high last year.

Finance Minister Palaniappan Chidambaram, seeking to maintain expansion in Asia's third-largest economy, asked state- run bank CEOs on Jan. 4 to lower lending rates to keep the economy humming.

Bhatt said State Bank will proceed with its 167.36 billion rupees ($4.25 billion) rights offering even after global markets tumbled, predicting that the sale's discount will attract investors.

The bank, 59.73 percent government-owned, said on Jan. 14 it will offer one share for every five held at 1,590 rupees apiece. That's a 35 percent discount, based on the 2,437.25 share price on Jan. 11. The stock has fallen about 5.6 percent since then.

``When we priced at a 35 percent discount to the prevailing price, we gave room for market fluctuations,'' Bhatt said. ``The market volatility was expected given that Indian valuations were stretched.''