Leading banks have decided to hold interest rates for now, though their liquidity situation has improved considerably in the last 10 days. Bankers said the review of credit policy by Reserve Bank of India next week would provide a clearer picture on the situation.
They, however, pointed out that interest rates are set to come down in the medium term, though a tweak in the repo rate by the central bank may set the ball rolling. The government has already indicated that with the softening of inflation, policies must once again be growth-centric.
Suresh Tendulkar, chairman of Prime Minister's Economic Advisory Council, told Hindustan Times on Thursday that the need of the hour was to reset the focus on growth in the wake of softening inflation.
The central bank has reduced the cash reserve ratio to 6.5 per cent from 9 per cent in the last 10 days. The move itself has infused more than Rs 1 lakh crore into the system. In addition, RBI has decided to inject Rs 20,000 crore through short-term lending route to boost the mutual fund industry and help it in handling the redemption pressure.
“We may not immediately cut interest rates. We are constantly reviewing the situation and a decision on this would be taken after weighing all pros and cons,” MD Mallya, chairman and managing director, Bank of Baroda told Hindustan Times. The bank has a prime lending rate of 14 per cent at present.
Corporation Bank CMD B Sambamurthy echoed the same sentiments. “We are looking at it (cutting interest rates) and a decision would be taken at the appropriate time,” he said, adding that a review meeting would be held in a day to take stock of the situation.”