The Reserve Bank of India (RBI) on Tuesday left key rates unchanged, raising possibilities of a further delay in any lending rate cut by banks and thus, extending the wait for consumers for an ease in their various loan payouts.
In the sixth bi-annual monetary policy review released here Tuesday, RBI governor Raghuram Rajan kept a status quo on the repo rate — the rate at which RBI lends to banks — at 7.75%, while reducing the statutory liquidity ratio (SLR) by 0.50 percentage points to 21.5%. SLR is the proportion of deposits banks have to keep aside in cash or gold or in the form of government-approved securities, before lending.
Any reduction in the ratio gives banks surplus funds to lend, and Tuesday’s cut in the SLR would release about Rs 45,000 crore into the system according to experts — more than the amount needed for extending two metro rail projects in a city like Mumbai.
The central bank kept the cash reserve ratio (CRR) — proportion of deposits banks have to park with RBI — unchanged at 4%.
The central bank’s move was guided in the absence of any incremental development in the disinflationary environment and in the fiscal front since January 15, when RBI had cut the repo rate by 0.25 percentage points.
This time, RBI has preferred to wait for more data in the form of GDP estimates on February 9, and fiscal cues in the budget.
“Given that we cut rates off-cycle and given that there has been no significant new development on the inflation and fiscal front since then, we have maintained status quo on interest rates,” Rajan said.
“Further action will be in the direction that was initiated and will depend on developments on the fiscal front as well as the continuation of the disinflationary process,” Rajan added.
For RBI’s move to cut EMIs, lenders including State Bank of India, ICICI Bank, HDFC Bank and others will have to reduce lending rates on home, auto or personal loans. So far, most banks have just indicated the easing of the interest rate cycle. While United Bank of India has announced a 0.25 percentage point cut in base rate, SBI and HDFC Bank have just indicated a rate cut.
“With inflationary expectations at a 21-quarter low and coupled with a benign global environment, we are in the early phases of a prolonged rate-easing cycle,” SBI chairperson Arundhati Bhattacharya said.
However since the central bank has opted to wait for some more time it is widely expected that commercial banks may also wait for more clarity on GDP and on the fiscal front.
“The decision to hold policy rates was expected given the rate cut just a few weeks ago, and in line with RBI’s approach of observing inflation trends over a period of time before taking any policy action,” ICICI Bank CMD Chanda Kochhar said.
According to Robin Roy, associate director at PwC, “RBI continues to watch the inflation situation closely using CPI or retail inflation, which impacts the consumer most. It remains to be seen whether banks without liquidity worries push credit.”