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Rediff.com  » Business » Barclays says RBI rate cut unlikely on Dec 18

Barclays says RBI rate cut unlikely on Dec 18

December 06, 2012 14:41 IST

British lender Barclays on Thursday said the Reserve Bank is likely to leave the policy rates unchanged at the December 18 review and that a lending rate cut may happen only in the January policy announcement.

"We believe RBI will continue with its liquidity infusions through CRR cuts and OMOs (open market operations) to take care of liquidity concerns. A repo rate (at which RBI lends to banks) cut is not expected before late January," Barclays said in a note.

Over the past three months, the Reserve Bank has reduced the cash reserve ratio - the portion of deposits banks are required to keep with RBI - by 50 basis points or 0.50 percentage points to 8 per cent. But these cuts did not lead to an easing of overnight rates.

"Given the prevailing liquidity conditions, we do expect OMO and further CRR cuts in the remaining three months of the fiscal. The steep fall in GDP growth will likely trigger repo rate cuts in the next quarter," the report said.

Noting that CRR cuts did not lead to easing of lending rates, it said any more CRR cuts will also not ease lending rates. As has been visible in the past months, despite RBI significantly reducing the CRR to the tune of 175 bps to 4.25 percent in 2012, the lending rate has not come down.

"Despite 25 bps CRR cut each in September and October, the overnight call money rates have not dropped and the LAF borrowings remain high to the tune of over a Rs 1 trillion daily," the report added.

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