With easing of the liquidity conditions over the past month, the Reserve Bank of India is unlikely to cut key bank rates in the quarterly review of the monetary policy on January 27. ?We don?t expect rate cuts by the RBI,? a finance ministry official said on Friday.
The official said RBI was expected to keep its repo, reverse repo rate and cash reserve ratio (CRR) unchanged. Repo, which is used to inject liquidity, is RBI?s short-term lending rate and reverse repo is the rate at which RBI sucks funds from the banking system. CRR is the slice of deposits, banks need to maintain with the RBI.
That liquidity conditions have been benign, can be gauged from the fact that banks deposited Rs 38,790 crore at the reverse repo window on Friday. They borrowed only Rs 5,035 crore the same day. Banks have been parking funds with RBI in the past few weeks. Though this has raised concerns that banks were lending enough, the government now feels that further easing of policy rates may not be able to address that.
Credit to the commercial sector slightly improved to Rs 11,961 crore for the fortnight ended January 2, as per the latest weekly statistical supplement released by the RBI on Friday. The non-food credit has actually contracted by Rs 1,157 crore in December. It fell to Rs 71,287 crore in November from Rs 1,02,760 crore in October.
The yield on 10-year government bond closed at 5.60%, up from the previous close of 5.55%. UCO Bank CMD SK Goel said liquidity was not an issue any longer but there was still confidence deficit among bankers, which led to conservative lending in December. ?But we expect lending to improve in January,? he added.
The RBI on January 4 reduced the repo and reverse repo rate by 100 basis points each to 5.5% and 4%, respectively, while it pared CRR by 50 bps to 5%.