RBI may cut policy rate by at least 0.25% on Tuesday, say bankers

MDT/PTI 28 January 2013

The RBI in its last policy review had hinted at moderating its policy rate in January to stimulate growth

New Delhi: The Reserve Bank of India (RBI) is expected to cut its policy rate by a minimum 0.25% in its third quarter review on Tuesday as there are increased concerns over contracting industrial output and falling growth, reports PTI quoting bankers.

Oriental Bank of Commerce chairman and managing director SL Bansal said, “We are expecting 25 basis points (bps) cut in repo rate and cash reserve ratio (CRR) by similar percentage points”.

State Bank of India chairman Pratip Chaudhuri, last week, said, “CRR cut is more important and repo rate cut, if it happens, will be very useful. 50 basis points (0.5%) repo rate cut would be useful. CRR, I would request for a 50-100 basis points cut. Only then, the rate of interest environment can come down significantly,” he added.

RBI in its last policy review had hinted at moderating its policy rate in the January policy meeting to stimulate growth.

Last week in Hong Kong, finance minister P Chidambaram had said the RBI must strike a balance between needs of pushing growth and controlling inflation.

Inflation based on wholesale prices declined to a three- year low of 7.18% in December. However, retail inflation rose for the third successive month in December to 10.56%.

Industrial output contracted by 0.1% in November.

The economy grew by 5.4% in April-September this fiscal, as against 7.3% in the same period of 2011-12. It is estimated that the year-end GDP would be 5.7%, a 10-year low.

ICICI Bank MD and CEO Chanda Kochhar, last week, also said that RBI may lower its benchmark interest rates in the coming months as inflation has eased, pursuant to which banks may also lower their rates to some extent to pass on the benefit to customers.

“With inflation easing, I think that we would see policy rate cuts in the coming months,” Kochhar said.

According to Punjab National Bank CMD KR Kamath, banks would reduce interest rates if RBI cuts policy rates in the coming policy.

“If the rate of interest is reduced, probably the transmission will happen. Bankers have already been saying that transmission will happen if there is a rate cut,” Kamath said.

“While inflation concerns remain, growth is a bigger concern ... so, while we understand the issues related to inflation at this point of time, it was our recommendation that there should be a rate cut so that growth comes first,” HDFC Bank MD Aditya Puri said.

RBI had last reduced short-term lending (repo) rate in April, 2012 and stands at 8%. In October, the RBI had reduced cash reserve ratio (CRR)—the portion of deposits banks have to mandatorily park with the central bank—by 25 basis points to 4.25%.

Comments

User

M G WARRIER

1 decade ago

Please read "retain the present base rates" for the words "heed to the sound advice here" in the second line of my comments posted here today(January 28). The error is regretted.

M G WARRIER

1 decade ago

This time around, it is more likely that while Dr Subbarao, based on his own perception also, may like to heed to the sound advice here, RBI may, for once, reluctantly come out with a 0.25 percentage point reduction in repo rate leaving CRR untouched. This guess is based on the assumption that both FM and RBI Governor have reconciled to the fact that GOI and RBI can ill-afford wasting the pre-Budget and post-Budget days arguing about the pros and cons of tinkering with base rates.
Though, in a cool ambience in Singapore, FM conceded that ‘RBI has the autonomy to do its task of controlling inflation’, Chidambaram, who, once, loudly thought about walking alone, could not resist the temptation to guide RBI policy by prefixing or suffixing that ‘Low growth means fewer jobs, lower incomes and fewer self-employment opportunities. I am sure the governor will bear all these in mind when he takes a decision.’