No relief: Lending, deposit rates to remain unchanged after inflation wary RBI refuses to order a cut, say bankers

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New Delhi | Updated: December 2, 2014 10:24:37 PM

Interest rates, both for deposit and lending, are likely to remain static as Guv Raghuram Rajan-led RBI...

RBI Governor Raghuram Rajan today kept interest rate unchanged, saying that a shift in stance is 'premature' .Raghuram Rajan kept rates unchanged, saying that a cut is ?premature? .

Interest rates, both for deposit and lending, are likely to remain static as the Governor Raghuram Rajan-led Reserve Bank of India (RBI) today kept the key rate unchanged at its fifth bi-monthly monetary policy review.

“Interest rates are likely to remain unchanged,” SBI Chairperson Arundhati Bhattacharya said.

Echoing similar views Yes Bank CEO and Managing Director Rana Kapoor said: “Base rate and benchmark prime lending rate are unlikely to see any downward revision at the moment. It can happen only after policy rate moderates.”

However, he said, there could be some adjustment in interest rate of deposits of long tenure over 3 years.

Some of the banks have done this and some more could do it based on their asset liability position, Kapoor said, adding that a few more banks can make changes in the coming days as system has ample liquidity.

According to United Bank of India Executive Director Deepak Narang, margins of banks are already under pressure due to high NPA level. “So, I don’t see a cut in the interest rate at the moment,” he said.

RBI Governor Raghuram Rajan today kept interest rate unchanged, saying that a shift in stance is ‘premature’ but hinted that a cut may come early next year if inflation continues to ease and government acts on the fiscal side.

Accordingly, the repo rate continues to be at 8 per cent while the cash reserve ratio has also been retained at 4 per cent despite inflation based on the Wholesale Price Index coming down to a 5-year low of 1.77 per cent in October.

The low inflation is not because of structural changes in the domestic economy but due to fall in international prices of crude, which has declined to a historical low, said Shashwat Sharma, Partner – Financial services, KPMG India.

“Therefore, we understand and appreciate the RBI’s stance on no cut in interest rates and look forward to structural changes by the government in the domestic economy,” he added.

However, RBI has clearly opened the window for rate cuts to begin in the next review in February 2015 or possibly earlier, Kapoor said.

“I see space for monetary accommodation to the tune of close to 100 basis point cut over the course of next 12 months in 2015-16,” he added.

Bhattacharya further said that the RBI’s assertion of a possible change in monetary policy stance next year is a clear vindication and acknowledgement of a benign inflation regime.

“In fact, by advancing the inflation target of 6% to March 2015, RBI has now set out a clear message of the reversal of the rate cycle, sooner than later,” she added.

According to ICICI Bank CEO Chanda Kochhar the statement that a change in monetary policy stance is likely early next year if the current positive trends continue is very welcome.

“The results of government actions to energise investment activity should start playing out in the coming months. As this happens and interest rates moderate, we should see an improvement in growth going forward,” she said.

Federal Bank CEO Shyam Srinivasan said the policy announcement was along the expected lines both in content and the underlying tone, which suggested an accommodative stance in the period ahead (even outside of policy review cycle), should data flow suggest continued easing up of inflation.

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