MUMBAI, Sept 17: Interest rates on home and car loans may ease despite the key policy rates left unchanged by the RBI which lowered the Cash Reserve Ratio (CRR) by 0.25 per cent to unlock Rs 17,000 crore of liquidity into the system.
However, the RBI’s cautious stance of keeping short-term lending and borrowing rates unchanged in view of high inflation disappointed India Inc.
Close on the central bank’s decision on CRR cut, banks have indicated that they will respond positively and take a fresh look at the lending rates soon.
Following the cut, CRR – the portion of deposits that banks are required to keep with RBI – will come down to 4.5 per cent, while the repo rate – at which the central bank lends to the banks – would remain unchanged at 8 per cent.
Appearing satisfied by the RBI’s decision to lower CRR, Finance Minister P Chidambaram said, “It is a small step, but a welcome step. I am not disappointed with the RBI policy. Mid quarter review by RBI is encouraging and supportive. RBI is slated to take more decisions”.
The Minister also said that government would be taking more steps between now and October 30 — the date on which the RBI will come out with its second quarter monetary policy.
“I am very confident that between now and October 30 the government is expected to take a number of additional policy measures and also lay out a plan of fiscal consolidation. The response of RBI on October 30 will be far more supportive of growth,” Chidambaram said.
Justifying his cautious stance, RBI Governor D Subbarao said, “as inflationary tendencies have persisted, the primary focus of monetary policy remains the containment of inflation and anchoring of inflation expectations.”
According to industry body Assocham, RBI has once again deeply disappointed the industry which was expecting substantial cut in the interest rates.
The injection of additional Rs 17,000 crore into the system, the RBI said, would ensure adequate flow of credit to productive sectors of the economy.
Commenting on RBI’s action, State Bank of India (SBI) Chairman Pratip Chaudhuri said the bank will review its rates in the light of policy decision. The asset liability committee (ALCO) of bank will soon to take a view on rate revision.
“It is a very positive move. I think the RBI has given a clear signal that they (banks) are willing to respond and that they (banks) have taken note of the signs of deceleration in economy,” Chaudhuri added.
Bank of Baroda Chairman and Managing Director M D Mallya said the RBI’s decision would unlock Rs 720 crore of additional fund for the bank and added that the ALCO of the bank would meet soon to take stock of the situation.
Expressing similar opinion, Oriental Bank of Commerce (OBC) Chairman and Managing Director S L Bansal said the bank would take a view on rate revision in its ALCO meeting soon.
India Inc, which was expecting a rate cut in view of declining industrial output, expressed disappointment.
Assocham president R N Dhoot said, “The RBI has once again deeply disappointed the industry which was expecting it to worry about a sharp deceleration in growth and go in for a substantial cut in the interest rates.”
Ficci president R V Kanoria said, “We look forward to a rate cut and repo rate cut in RBI’s second quarter review of monetary policy next month”.
In view of slew of reforms undertaken by the government, CII director general Chandrajit Banerjee said the chamber “had hoped that the RBI would also move in favour of growth and cut repo rates”.
Deputy Chairman of Planning Commission Montek Singh Ahluwalia, however, described the RBI’s decision as a positive step which would boost the confidence in the economy.
“…What RBI has done is that they have acted in the market by releasing resources. It is the release of resources that will make an impact on the rest of the system. It is a step in the right direction,” he said.
According to Prime Minister’s Economic Advisory Council (PMEAC) Chairman C Rangarajan, RBI’s move to cut CRR was a cautious decision.
“The RBI has taken a cautious step. The latest data on inflation has not been encouraging…Under the circumstances, I believe this (CRR cut) is the maximum the Reserve Bank could have done,” he said.
In some ways, he added, a reduction in CRR is “more potent than even an announcement regarding policy rate” as the move will provide some additional liquidity and enable banks to expand their credit portfolio.
RBI has justified its decision of keeping the key policy rates unchanged by stating that although the recent decision to raise diesel price by Rs 5 a litre is a significant achievement, it will put pressure on inflation.
The new CRR would come into effect from September 22.
Noting that growth continues to be weak amidst a negative investment climate, the RBI policy review said that the recent reform measures undertaken by the Government have started to reverse sentiments.
Government’s move to hike diesel prices satisfies RBI’s long standing demand for containing fiscal deficit while also liberalising foreign holding norms in a string of sectors.
The RBI, however, stated high fiscal and current account deficits as the factors preventing it from cutting rates.
Sounding less hawkish, it said, “The stance of monetary policy will be conditioned by careful and continuous monitoring of the evolving growth-inflation dynamic, management of liquidity conditions to ensure adequate flow of credit to productive sectors and appropriate responses to the shocks emerging from external developments.” (PTI)
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