EMIs unlikely to get cheaper, say bankers

Even as the Reserve Bank of India (RBI) cut the key policy rate by 25 basis points for the third time since January and kept the cash reserve ratio (CRR) unchanged to promote growth, banks seem to be in no mood to reduce lending rates, at least for now.

Banks have been stumped by RBI's warning that there is little room to ease monetary policy further due to persistent risk of inflationary pressure.

"The balance of risks stemming from our assessment of the growth-inflation dynamic yields little space for further monetary easing," RBI Governor Duvvuri Subbarao said in its policy statement for 2013-14. 

After the latest rate cut, the repo rate at 7.25 percent is the lowest since May 2011.

Although Subbarao was hopeful that banks would lower rates during the next three to six months by amounts similar to the RBI's total rate cuts of 75 basis points so far in 2013, bankers for the time being rule out any such possibility.

For starters, the country's premier lender State Bank of India's Chairman Pratip Chaudhuri said “there is nothing to transmit”, while Citibank India CEO Pramit Jhaveri said “the repo cut by itself will not necessarily result in transmission of rates or lead to higher growth prospects, unless accompanied by better liquidity conditions and more public sector, government and private investment spending.”

The bearish mood was visible across markets as well, with stocks, the rupee, and bond prices all falling.

Bank of India CMD V R Iyer noted that RBI policy recognised the pressures on growth, it has also provided a clear guidance that the recent assessment of growth-inflation dynamics provides little scope to the RBI for further monetary expansion.
In his policy, Subbarao, sought to put the ball in the government’s court hinting that monetary policy action, by itself, cannot revive growth.

"It needs to be supplemented by efforts towards easing the supply bottlenecks, improving governance and stepping up public investment, alongside continuing commitment to fiscal consolidation,” he said.

Private sector lender ICICI Bank’s MD & CEO Chanda Kochhar conceded that the rates in the certificate of deposits have been going down, but termed it as a cyclical phenomenon.

“The present downward movement in deposit rates will not be sustained. And a lending rate cut will depend only on the movement of cost of funds,” she said.

HDFC Bank Chief Economist Abheek Barua said the policy was not only more hawkish than what macro conditions would warrant but also more guarded than the March review.

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