With inflation declining even below the Reserve Bank of India’s (RBI’s) comfort levels, the RBI is likely to cut the lending rate for banks and reduce the amount banks need to keep with it “anytime from now” to support demand, bankers said.
“A 0.5-1 per cent cut in the reverse repo rate — the rate at which the RBI borrows money from banks — could be expected anytime now following the sharp decline in inflation numbers,” Ashish Parthasarathy, deputy head of treasury, HDFC Bank, said. “This would be needed to support the falling demand in different sectors owing to the global economic slow down.”
The RBI had revised its key rates several times in 2008 to balance the liquidity conditions in the system, besides supporting the economic growth momentum.
It slashed the cash reserve ratio (CRR) — the percentage of deposits banks need to park with the RBI — by 3.5 per cent to 5.5 per cent from 9 per centm besides cutting the repo (the rate at which banks borrow from the RBI), reverse repo rates to 6.5 per cent and 5 per cent, respectively.
KC Kalia, executive director, Vijaya Bank, also echoed a similar view. “The RBI is expected to reduce its key rates by 0.5-1 per cent in the near future in view of the slow down in different sectors,” he said.