Hit by liquidity crunch and economic slowdown, the Reserve Bank of India is widely expected to move away from tight monetary measures while unveiling its credit policy giving more priority to push up growth rather than inflation which has started falling.
“The RBI is likely to take a few more measures to ease the liquidity in the system further...This may include a 0.25-0.5 per cent cut in the short term lending rate to banks,” Kotak Mahindra Bank’s Head of retail liabilities, K V S Manian told PTI here.
Faced with the global slow down, sagging stock market and large scale FII outflow, the RBI slashed its Cash Reserve Ratio (CRR) by 2.5 per cent, releasing Rs one lakh crore into the banking system. CRR is the manadatory amount banks need to park with the apex bank.
Besides, Union Goverment released Rs 25,000 crore to compensate banks for waving off farm loans and the RBI opened a special repo window to enable banks avail upto Rs 20,000 crore to meet the redemption pressure of mutual funds.
The CRR presently stands at 6.5 per cent while the short term repo rate is nine per cent. Repo is the rate at which the central bank lends short term funds to banks.
IDBI Bank’s Chairman and Managing Director, Yogesh Agarwal said the RBI was expected to announce a host of measures as the continuation of the already taken steps to stablise the domestic financial system, at the same time to hold off inflation.
“There may be a few more steps from the RBI. The core focus of the banking regulator is still fighting inflation...They have various tools available and a cut in repo rate is one among them,” Agarwal said.
The inflation, which has been falling in the last two weeks is now pegged at 11.44 per cent and the cash-shortage in the system had forced many banks to go slow and selective on their lending to even corporate-clients coming with high ratings.
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Though inflation is still a matter of concern, the global commodity prices including oil were on the decline, coupled with fresh arrivals of food grain and other agri products, are expected to ease the price situation.
This would give the RBI the much-needed headroom to signal a rate cut in the monetary policy to boost growth, bankers said.
Despite three rounds of cuts in the CRR, only Punjab National Bank has cut its home, auto and education loan rates by 0.5 per cent while other banks are likely to wait till the policy to assess the full impact of the monetary measures.
State-run Corporation Bank’s Chairman and Managing Director, B Sambamurthy also expected more measures from the central bank and said the industry would wait for further policy signals from the RBI prior to reviewing their interest rate-structure.
Private-sector Indusind Bank’s Executive Vice-President, Moses Harding said the Reserve Bank was likely to cut the repo rate by 0.25-0.5 per cent in the policy to support growth and ensure availability of debt to the needy sectors.