Banks expect rate cuts in Jul; rule out cut in lending rate
Ruling out the possibility of cutting lending rates after Reserve Bank kept key rates unchanged, bankers today said the central bank decision to hold the rates was on expected lines given the troubles on rupee and high current account deficit.
Mumbai: Ruling out the possibility of cutting lending rates after Reserve Bank kept key rates unchanged, bankers today said the central bank decision to hold the rates was on expected lines given the troubles on rupee and high current account deficit.
Describing RBI policy as not surprising, State Bank of India Managing Director and Chief Financial Officer Diwakar Gupta said there is room for the central bank to look at the long-term and not too much on the short-term issues like rupee fall and the CAD.
"Therefore, I expect them to do something on the next policy day as inflation is under control," he said, adding that food inflation is a structural issue and not driven by money supply.
On the changing concerns of RBI, which for too long has been harping on the high current account deficit and now is expressing concerns over balance of payments, Gupta said: "Our problems on the BoP will remain so long as we remain a services-driven economy and not a manufacturing one."
"The recent depreciation of the rupee and the absence of any uncertainty about its future course warranted holding action by the RBI," HDFC Bank said in a statement.
"Prudence pays, especially for a central bank that's attempting to manage an economy buffeted by adverse external pressures and extreme uncertainty in the global policy environment," it added.
Bank of India CMD V R Iyer said the RBI move to hold the repo rate at 7.25 per cent was expected given the troubles on the rupee and the current account deficit.
"There will be no change in lending rate as the cost of deposits continues to be very high," she told PTI.
Country's second largest lender, state-run Bank of Baroda's Chairman and Managing Director S S Mundhra said 6.6 per cent depreciation of the rupee between May 22 and June 11 limited RBI's chances even though there has been a cool-off in inflation.
"What is surprising is the hawkish stance which the central bank has given especially on high food inflation. I think they will look very closely for the areas of concern which it has identified, specifically the rupee and food inflation," Mundra said.
He, however, added that one must not read too much into the hawkish stance, saying it is natural for a central bank to be cautious.
"In the given circumstance, the RBI could not reach any better than this," Indian Overseas Bank Chairman and Managing Director M Narendra told over phone from Chennai.
However, he made his displeasure known by saying that there are no encouraging statements in the policy which talks of some succour in the future.
"I hope it comes back very aggressively in the first quarter monetary policy review on July 30," he said.
Bankers, led by the country's largest lender State Bank of India, had widely been asking for a cut in the cash reserve ratio (CRR), saying only such a move can help them cut their lending rates.
Mundhra, however, said liquidity situation returning to relatively comfort levels, as seen from the banks' overnight borrowings, may have been the reason for leaving the CRR unchanged.