Bankers want RBI to cut rate and release liquidity
New Delhi: With festival season round the corner, bankers are pressing for cut in CRR and policy rate by Reserve Bank in its monetary policy later in the week to boost demand for manufactured goods and arrest sagging growth.
"We have made our recommendations for releasing the liquidity, making it more accessible, making it less expensive," State Bank of India (SBI) Chairman Pratip Chaudhuri said.
"The recommendation says cut the CRR, cut the repo rate and not to restrict the MSF to a particular number but whatever excess SLR banks hold that should be available for MSF (marginal standing facility)," he said.
RBI is scheduled to announce the mid-quarter review of the monetary policy for 2013-14 on September 20.
In mid-July, RBI had raised bank rate and MSF to banks by 2 percent to 10.25 percent making the loans costlier in its bid to contain slide of the rupee against dollar.
Introduced during the 2011-12 period, MSF allows banks to borrow money from the central bank at a higher rate when there is significant liquidity crunch.
"We think this tightening of the liquidity and making it more expensive of course may have been helpful in containing or arresting decline of the rupee but it has its collateral cost in terms of growth of economy," Chaudhuri said.
Indian Overseas Bank Chairman and Managing Director M Narendra said "it is our wish that RBI should reverse the liquidity tightening measure taken recently so that loan becomes cheaper."
With festival season round the corner, demand for loan are expected to go up and banks would be able to disburse loans at the lower rate, Narendra said.
In its last policy review in July, the RBI chose to keep all key interest rates unchanged on account of weak rupee.
Accordingly, the repo rate or the rate at which RBI lends to the system, has been retained at 7.25 percent and the cash reserve ratio (CRR), the amount of deposits banks park with RBI, has been kept unchanged at 4 percent.
Expressing hope of liquidity easing measure, Bank of Baroda Executive Director P Srinivas said loan demand is expected to rise as monsoon has been good across the country.
Yesterday, PMEAC Chairman C Rangarajan had said inflation and forex market conditions are expected to weigh on the Reserve Bank decision when it reviews monetary policy.
"All that I can say is that the RBI, I believe, will take into account the behaviour of inflation as well as what is happening in the foreign exchange market and take a decision," he had said.
Inflation, based on the Wholesale Price Index, for August rose to 6.10 percent from 5.79 percent in July, as per the official data released yesterday. It was 8.01 percent in August last year.
The rupee has meanwhile appreciated to 63.05 level intra-day after having hit the life-time low of 68.85 against the US dollar towards August end.