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Cut key rates by 100 bps; usher in low-interest regime: Kamath

Cut key rates by 100 bps; usher in low-interest regime: Kamath
PTI
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First Published: Tue, Dec 30 2008. 04 04 PM IST
Updated: Tue, Dec 30 2008. 04 04 PM IST
New Delhi: Forecasting that inflation is inching towards zero, ICICI Bank Managing Director and CEO K V Kamath today suggested to the Reserve Bank to further cut key policy rates by 100 basis points as part of a calibrated move to usher in a low interest rate regime.
“I think just now let us start by cutting them (repo and reverse repo rates) by 1% or so, and see what happens,” he told PTI when asked for what his advise would be for RBI to reverse the economic slowdown.
Kamath, who is also the President of the Confederation of Indian Industry, said, “It would be in everybody’s interest to work interest rates down. Inflation clearly talked of being near zero. I think it is the right time to work on this front (reducing interest rates) now.
“The economy thrives in a low-interest rate scenario. By the time inflation comes to zero or near zero, we have interest rates down where we wanted...so I think use repo and reverse repo in small measures and see what they do to interest rates.”
The inflation has nearly halved from the peak of 12.91% in August and with sharp decline in commodity and crude prices in the international market, it is likely to dip further.
Having already taken host of measures to pump in Rs3,00,000 crore into the system, RBI Governor D Subbarao, who is reportedly working on more initiatives, met Prime Minister Manmohan Singh yesterday.
The Government in its Mid-Year Economic Review too made a case for “aggressive” easing of monetary policy by RBI and reduction in benchmark interest rates in the next six to 12 months.
RBI, Kamath said, could give further fillip to interest rates so that the benefits could be passed on to both industry as well as consumers.
Appropriate signals through cut in key policy rates, he said, would “indeed bring down the rates from where they are today”.
Since October, the Reserve Bank has reduced Repo by 250 basis points and Reserve Repo by 100 basis points to 6.5% and 5%, respectively, signalling a soft interest rate regime.
As for the ICICI Bank customers, Kamath promised, they would get their new year gift in the form of a cut in interest rates.
“We are looking at cutting interest rates very early in January for our housing and other loan customers,” he said.
The extent of the rate cut is being calibrated and would be announced soon, he said when asked if the rate could be more than 100 basis points.
ICICI had earlier this month reduced home loan rates for new customers by up to 1.5% point. There are indications that the fresh cut in interest rates would benefit both existing and new customers.
The Prime Lending Rate of the bank currently stands at 17.25%. The bank last revised the benchmark lending rate by effecting 75 basis points’ hike in August this year.
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First Published: Tue, Dec 30 2008. 04 04 PM IST