'RBI unlikely to cut rates soon'

Mumbai: Despite the improvement seen in India's economic growth, probability the Reserve Bank of India (RBI) will hike rates soon was slim, Moody's Economy.com said in a note on Thursday.

"Although growth apparently recovered in the first quarter (2009), RBI is still confronted with a dilemma: A case for monetary tightening can be made, yet higher interest rates could choke off fledging growth," Nikhilesh Bhattacharya, an associate economist with the division of Moody'a Corp said in the note.

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India's economy grew faster than expected in the Jan-March quarter, helped by strength in farm and services sectors that suggested Asia's third-largest economy has already turned the corner and may be set for an early recovery.

Despite aggressive rates cuts by the central bank since mid-October, bank lending rates have remained uncomfortably high with most banks' prime lending rates still above 10 percent.

"Despite the high cost of credit and a weakened economy, bank lending has stabilised in recent months on the back of an improved outlook," the note said. "Commercial credit growth has stablised since February, while money supply growth has reaccelerated".

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Money supply has been growing at an average 20.6 percent in April and May from a year ago, after dropping to 18.6 percent in the two weeks to March 27, data from the central bank shows.

"A pre-emptive rate hike to stop surging asset prices and monetary growth is unlikely. But just standing by doing nothing or cutting rates further may create problems down the road," Bhattacharya said.

(For more news on Reuters Money click http://in.reuters.com/money)