RBI takes baby step, cuts policy rate by 0.25 percentage points; industry not impressed
Updated: Mar 19, 2013 04:02:49pm
Mumbai, Mar 19 (KNN) The Reserve Bank of India today announced a modest cut of 0.25 percentage points in the policy interest rates giving a clear signal that given the high inflation rate particularly at the retail level, borrowers must learn to live with the high cost of finance.
The central bank in its mid-quarter policy review reduced the benchmark rate, which is known as the repo rate in the banking parlance to 7.50 per cent from 7.75 per cent from immediate effect. This is the rate at which the RBI does short-term lendings to the banks. The reverse of it, at which banks lend to the RBI also stands revised to 6.5 per cent.
In effect, there is not going to be much change in the EMIs (equated monthly instalments) which are paid by borrowers to the banks, as per the indications given by the banks after RBI Governor D Subbarao unveiled the policy stance.
He made a significant statement:” even as the policy stance emphasises addressing the growth risks, the headroom for further monetary easing remains quite limited”. In simple words, no more easing of interest rates in the near future. The RBI, it is indicated from the policy stance has done, what it could have done .
The industry and the stock markets thought at best it was a baby step and would not make much of a difference. For one, it was expected that the RBI would infuse more cash into the system by reducing the cash reserve ratio ( the portion of money that the banks are required to park with the central bank). But the CRR has not been changed and stays at four per cent. Second, the RBI has made it clear it has no elbow room to further cut rates.
In the face of a severe industrial slowdown, the policy does not bring any relief. Although the micro, small and medium enterprises (MSMEs) do not have adequate access to the bank finance, the cost of serving the loan is extremely difficult even for those which have availed of the loans.
Commercial banks, on their part , have indicated that there is not much scope for cut in the lending rates. “Banks would cut the lending rate when deposit rates, both short-term and long-term, start showing a decline. Base rate may not be cut at this point of time, “Chairman and Managing Director of Indian Overseas Bank M Narendra said.
Planning Commission Deputy Chairman Montek Singh Ahluwalia said, “Many people would say that the signal should have been more robust than 25 basis points”.
India’s GDP growth in third quarter of 2012-13, at 4.5 per cent, was the weakest in the last 15 quarters. “What is worrisome is that the services sector growth, hitherto the mainstay of overall growth, has also decelerated to its slowest pace in a decade, “Subbarao said while unveiling the policy.
While inflation at the wholesale level was 6.8 per cent in February, 2013, it was 10.9 per cent at the consumer price index (retail) level. (KNN)
The central bank in its mid-quarter policy review reduced the benchmark rate, which is known as the repo rate in the banking parlance to 7.50 per cent from 7.75 per cent from immediate effect. This is the rate at which the RBI does short-term lendings to the banks. The reverse of it, at which banks lend to the RBI also stands revised to 6.5 per cent.
In effect, there is not going to be much change in the EMIs (equated monthly instalments) which are paid by borrowers to the banks, as per the indications given by the banks after RBI Governor D Subbarao unveiled the policy stance.
He made a significant statement:” even as the policy stance emphasises addressing the growth risks, the headroom for further monetary easing remains quite limited”. In simple words, no more easing of interest rates in the near future. The RBI, it is indicated from the policy stance has done, what it could have done .
The industry and the stock markets thought at best it was a baby step and would not make much of a difference. For one, it was expected that the RBI would infuse more cash into the system by reducing the cash reserve ratio ( the portion of money that the banks are required to park with the central bank). But the CRR has not been changed and stays at four per cent. Second, the RBI has made it clear it has no elbow room to further cut rates.
In the face of a severe industrial slowdown, the policy does not bring any relief. Although the micro, small and medium enterprises (MSMEs) do not have adequate access to the bank finance, the cost of serving the loan is extremely difficult even for those which have availed of the loans.
Commercial banks, on their part , have indicated that there is not much scope for cut in the lending rates. “Banks would cut the lending rate when deposit rates, both short-term and long-term, start showing a decline. Base rate may not be cut at this point of time, “Chairman and Managing Director of Indian Overseas Bank M Narendra said.
Planning Commission Deputy Chairman Montek Singh Ahluwalia said, “Many people would say that the signal should have been more robust than 25 basis points”.
India’s GDP growth in third quarter of 2012-13, at 4.5 per cent, was the weakest in the last 15 quarters. “What is worrisome is that the services sector growth, hitherto the mainstay of overall growth, has also decelerated to its slowest pace in a decade, “Subbarao said while unveiling the policy.
While inflation at the wholesale level was 6.8 per cent in February, 2013, it was 10.9 per cent at the consumer price index (retail) level. (KNN)
Loading...
