rbi pushes banks to transfer cuts
TRANSCRIPT
RBI pushes banks to transfer cuts
Deposit Rates Have Been Lowered More Than Lending: Guv
Contd…Reserve Bank of India governor Raghuram Rajan on Monday kept rates unchanged but said that he is pushing banks to pass on benefits of earlier rate reductions. In a dovish policy statement, Rajan said that the Indian economy was “truly in a recovery mode“ and that Indian markets are expected to sail through the US Federal Reserve's expected rate hike next month. “Thus far, we have seen only half the interest rate cuts since January passed through. We are working with the banks on this,“ said Rajan, reminding banks that they have passed on only 60 basis points of the 125-basis-point reduction in policy rates.The next trigger for reducing lending rates will be the enforcement of norms requiring banks to price their benchmark rates based on marginal cost of funds. The norms are expected to come by next week and will force banks to revise their lending rates.
Contd…According to the governor, banks have cut deposit rates by more than their lending rates. He said that the central bank was in dialogue with the government to bring down small savings rates and link them to market rates which will help banks further lower cost of funds. This, coupled with the clean-up of bank balance sheets, would give lenders headroom to reduce lending rates.Chandra Shekhar Ghosh, MD & CEO of the newly-formed Bandhan Bank, said, “Once small savings rates are pared, banks will be in a position to cut their deposit rates and bring down the cost of money . Also, as most banks are providing funds for bad assets, their balance sheets are being cleaned. This will pave the path for fresh lendings. As we go along, the credit offtake will pick up.“Given the macroeconomic situation, Rajan said that the central bank has decided to keep the policy repo rate unchanged at 6.75% and to maintain the cash reserve ratio (CRR) at 4% of demand and time deposits.
Contd…“The Reserve Bank will use the space for further accommodation, when available, while keeping the economy anchored to the projected disinflation path that should take inflation down to 5% by March 2017,“ Rajan said.Although the RBI has maintained its growth projection for 2015-16 at 7.4%, it has introduced a mild downside bias. Rajan downplayed the impact of the wage revision following pay panel recommendations, stating that it would be offset by budgetary tightening.The governor also sounded a mild warning on food prices. “As anticipated in our previous policy, retail inflation measured by the consumer price index (CPI) increased for the third successive month in October 2015, pushed up by a surge in the monthly momentum. Food inflation rose sharply in October, driven especially by pulses,“ Rajan said.The governor said that inflation is expected to rise further until December before plateauing. “Although the seasonal moderation in prices of vegetables and fruits is expected to provide some respite, the El Nino-induced shortening of winter may limit this effect,“ Rajan said.
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