Bankers are expecting a 0.5 per cent reduction in key short-term lending rate by RBI in January after the central bank's policy review kept rates unchanged, but gave sufficient hints of a rate cut next month. Bankers also said a cut in interest rates is unlikely for the time being.
"I personally feel that in the January policy there will not be a baby-step cut of the repo but a higher, say 50 bps (0.5 per cent) cut," Indian Overseas Bank Chairman and Managing Director M Narendra said. ICICI Bank CEO and Managing Director Chanda Kochhar said, "RBI has indicated monetary policy easing in the coming quarter. This signal of a shift in the focus of monetary policy from inflation to growth is a welcome move."
Earlier in the day, the apex bank left key policy rates - the repo - and cash reserve ratio unchanged at 8 and 4.25 per cent respectively.
Bankers also said that RBI policy review has given them clarity to price their products, including deposits.
While ruling out any immediate lending rate cut, Indian Overseas Bank said that "overall the policy review is very favourable to banks as it has given us clear indication on inflation, which is heading down, and also a clearer view that a larger repo cut is on the way."
Narendra pointed out that there is a firm indication to banks that they can cut deposit rates as RBI has clearly said interest rates are going to come down going forward.
HDFC Vice-Chairman and CEO Keki Mistry said, "We will see lower interest rates in 2013. I expect RBI to cut rates by 0.50 per cent before March and more rate cuts from April."
IDBI Bank Deputy Managing Director B K Batra said the policy review has been on expected lines, but RBI not cutting CRR was disappointing. "But RBI has given a clear guidance on future cuts and probably they left the CRR unchanged as they feel that current liquidity crunch is temporary."
Asked whether IDBI Bank will cut the lending rates, Batra said they have been doing it on select products like home and education loans. But there is no immediate plan to cut the benchmark lending rates, he added.
Bankers were expecting a 25 bps cut in the repo following a larger than expected drop in inflation numbers in the past two months.
On the positive side, the RBI clearly indicated that a rate in on the way next month and going forward its focus will be supporting growth as inflationary expectations are waning. Kochhar said the "government has also announced various policy reforms and a path of fiscal consolidation, which along with the monetary policy measures and a decision-making environment that facilitates capital investments would support improved economic performance going forward."
Asked about no change in CRR, Narendra said RBI could cut this any time. Moreover, it has said more open market operations are on the way if liquidity is further stretched.
Oriental Bank of Commerce Chairman and Managing Director S L Bansal sounded a bit disappointed, saying "there was widespread expectation that RBI would at least cut the CRR but to the surprise of everyone, it has left rates unchanged. Accordingly, I don't think banks will change their lending or deposit rates at the moment."