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Firming food prices may prompt RBI to maintain status quo

The Reserve Bank of India is unlikely to lower the interest rates during its annual monetary policy review on Tuesday due to increased food prices after unseasonable rains in various parts of the country, bankers and experts said.

However, RBI may indicate a rate cut in future after some improvement on the price front, they added.

State-run Union Bank’s Chairman and MD Arun Tiwari said it is “highly unlikely” that RBI would further ease its monetary policy on April 7, given the current price situation, as they have already done so twice in quick succession.

RBI had lowered its policy rate by 25 basis points to 7.5 per cent on March 4, after a similar cut on January 15, on the back of softening inflation and the government’s commitment to continue with the fiscal consolidation programme. Both the rate cuts were announced outside RBI’s regular policy review.

State Bank of India chairperson Arundhati Bhattacharya said she would rather want the central bank to cut Cash Reserve Ratio (CRR) so that the cost of fund can come down and the bank can pass on the same to the borrowers.

She said such a move would also help in an effective transmission of monetary policy action.

Asked if Statutory Liquidity Ratio (SLR) would help in cutting rate, Bhattacharya said, “May be reduced. But Liquidity Coverage Ratio (LCR) requirements will need us to invest in G-Secs. So SLR cut does not help much right now.”

Indian Banks’ Association Chairman T M Bhasin, who is also CMD of Indian Bank, said: “We are expecting a cut in CRR so that banks can reduce lending rate.”

Bhasin said that a cut in repo rate at this point would not help banks lower their interest rates, as they are not borrowing much. The credit offtake is low and is expected to remain so in the first quarter of 2015-15, he added.

Bank credit grew 9.5 per cent in the fortnight ended March 20 — the lowest growth in last two decades.

CRR, the portion of total deposit parked with the RBI, currently stands at 4 per cent.

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