RBI expected to draw comfort from stable core inflation.
With the government proposing to give flexibility to the Reserve Bank of India in fixing prudential limits, bankers expect a cut in statutory liquidity ratio
RBI on Tuesday slashed short-term lending rate by 0.25 per cent to 7.5 per cent, which the bankers read as not enough for an immediate cut in their lending rates.
Foreign institutional investors pumped in nearly $167.35 million (Rs 899.83 crore) into the local stock markets on Tuesday, according to the BSE provisional data.
India Inc's reactions to the RBI rate cut.
The new effective repo rate for the third quarter is now fixed at 7.25 per cent while CRR rate has revised to 4 per cent.
In its Third Quarter Review of Monetary Policy 2012-13, the Reserve Bank of India has reduced the policy repo rate under the liquidity adjustment facility (LAF) by 25 basis points from 8.0 per cent to 7.75 per cent with immediate effect.
The Reserve Bank of India Deputy Governor Rakesh Mohan on Thursday said the cash tightness in the banking system was temporary
At a time when headline inflation has been moderating, most were expecting the central bank to take a firmer stance on growth.
At present, CRR, the portion of deposits which commercial banks keep with the central bank, stands at 6 per cent.
Some see CRR cut as tight liquidity continues.
Explaining the rationale behind the regulatory mandate, the deputy governor, who looks after banking supervision, apart from a host of other departments at the central bank, said the CRR is charged on banks because only they can create money.
Five of the six external members had suggested that the central bank should reduce the policy rate.
Consequently, the reverse repo rate under the LAF will remain unchanged at 7.5 per cent and the marginal standing facility (MSF) rate at 9.5 per cent.
The central bank raised statutory liquidity ratio, the portion of deposits that banks are required to keep in government securities, by 100 basis points to 25 per cent. Other key rates were unchanged.
Reserve Bank's recent policy stance has earned for it praise as well as brickbats.
Bank lending has seen a significant fall. RBI needs to bring liquidity into the system immediately.
After all, India is the only one among the BRIC nations (Brazil, Russia, India and China) where lending rates are still ruling at their 2008 peaks.
The Reserve Bank has kept the key policy rates unchanged, while the Cash reserve Ratio (CRR) has been cut by 25 bps to 4.25%.
RBI has held its short-term lending (repo) rates unchanged at eight per cent since April 2012.
With credit demand picking up and liquidity crunch yet to ease, bankers are expecting a cut in key policy ratio - Cash Reserve Ratio (CRR) - by one per cent in the mid-term monetary policy review by RBI, a top bank official said.
RBI expects more from the government than last week's very limited package of reforms and fiscal measures.
At the Interbank Foreign Exchange (Forex) market, the rupee resumed sharply higher at 53.80 a dollar compared to last Friday's close of 54.30.
Last year SBI's credit growth was 15.6 per cent.
Reserve Bank of India Governor D Subbarao surely knows how to crack a joke even on as mundane a topic as the cash reserve ratio (CRR).
A day after RBI deputy governor's comment, Chaudhuri says his idea on cash reserve ratio was meant to ignite public debate
In view of high inflation and deficient monsoon rainfall, the Reserve Bank may find it difficult to cut the key lending rate to boost the economy as is being demanded by the industry.
With the slack season credit policy due to be announced on April 28, bankers are waiting to see how the Reserve Bank of India reacts to the budgetary proposals on freeing caps on statutory liquidity ratio and cash reserve ratio.
The banking system liquidity bounced back to surplus mode after three weeks, the Reserve Bank of India (RBI) data showed. This was due to government spending, according to dealers. The liquidity situation could further ease with the disbursement of the last tranche of incremental cash reserve ratio (I-CRR) worth Rs 50,000 crore on Saturday.
Reserve Bank Governor D Subbarao will, however, not touch the policy rate or the repo, rate at which RBI lends to banks, on October 30 when he unveils the half-yearly monetary policy because headline inflation continues to be elevated at 7-7.5 per cent, the agency said.
HDFC chairman Deepak Parekh on Monday said harmonisation of rules between banks and non-banks which reduces the regulatory arbitrage was one of the key factors which influenced the decision for merger between the largest home financier and HDFC Bank. Parekh, who said the merger discussions have happened over the last three weeks, noted that requirements like non performing asset recognition being at par and size-based regulations for non-bank finance companies are among the changes in landscape. Addressing a press conference after the surprise announcement earlier in the day, Parekh said the last three years have seen harmonisation in the regulations which reduce the "regulatory arbitrage" of running a separate home finance company.
The transmission of the last cash reserve ratio cut has also not happened fully because that came in March.
Last month, RBI slashed cash reserve ratio -- the percentage of deposits that banks have to keep with the RBI -- from 5.5 per cent to 4.75 per cent. With this, the central bank had infused Rs 48,000 crore (Rs 480 billion) into the economy.
The possibility of key policy rate cut is not bright as industrial output grew by 6.8 per cent in January against just 2.5 per cent in the previous month.
This cut was welcome not just for its well-planned timing, but also for its relative size; the RBI has, too often, moved with baby steps when strides are called for.
Amid liquidity tightness in the banking system, certificate of deposit (CD) rates topped 8 per cent for some smaller banks, with rates remaining on the higher side for derivatives loss-hit IndusInd Bank. On Thursday, CSB Bank raised Rs 100 crore via one-year CDs at 8.5 per cent, while Utkarsh Small Finance Bank issued three-month CDs at 8.05 per cent to raise Rs 50 crore.
'Nations like India with high inflation and public debt should be cautious'
Similarly, 51 per cent of 105 market participants polled by RBS said they do not expect a CRR cut in the quarterly policy announcement next Tuesday.
The RBI under former governor Shaktikanta Das resisted pressures to cut interest rates through 2024 as it kept its 'Arjuna's eye' trained on inflation, but the central bank under a new detail-oriented head will soon have to take a call if it can continue sacrificing growth. Das, a career bureaucrat who in 2016 oversaw Prime Minister Narendra Modi's highly disruptive demonetisation move, left a lasting legacy as he demitted office towards the end of 2024 after expertly navigating monetary policy for six years, the highlight of which was steering India's recovery through the pandemic.
