RBI governor Urjit Patel nudges banks to reduce lending rates

RBI governor Urjit Patel also signals that further rate cuts will depend on bringing down retail inflation on a durable basis, especially the non-food and non-fuel inflation


File photo. RBI governor Urjit Patel denied that the central has shifted from its mandate from looking at the overall CPI number to only the core inflation (non-food, non-fuel). Photo: Abhijit Bhatlekar/ Mint
File photo. RBI governor Urjit Patel denied that the central has shifted from its mandate from looking at the overall CPI number to only the core inflation (non-food, non-fuel). Photo: Abhijit Bhatlekar/ Mint

New Delhi: The Reserve Bank of India (RBI) governor Urjit Patel on Saturday exhorted banks to reduce their lending rates to push credit demand in laggard segments, saying banks have benefited from influx of low-cost deposits and its previous repo rate cuts.

He also signalled that further rate cuts will depend on bringing down retail inflation on a durable basis, especially the non-food and non-fuel inflation.

“One the amount of reduction in the repo rate that we have undertaken combined with the fact that banks have benefited immensely from the influx of deposits which are CASA deposits, that has come into the system. And the weighted average lending rate reduction has been considerably less, given that we feel that there is some scope for further reduction in lending rates and if you see that for sectors like housing, personal etc. the reduction has been much more than for other sectors by the same bank,” he said.

However, Patel denied that RBI has shifted from its mandate from looking at the overall consumer price index (CPI) number to only the core inflation (non-food, non-fuel).

Despite recognizing that retail inflation has fallen to its lowest level in two years, RBI on Wednesday surprised the market by holding policy rates unchanged and shifting its stance from accommodative to neutral.

Speaking after the customary post-budget address by finance minister Arun Jaitley to the central board of the RBI, Patel said the commentary by the monetary policy committee was that inflation excluding food and fuel has hardly buzzed since September.

“Therefore, if we want further reduction in headline inflation, it is going to be difficult. So it is not change in the variable that we have been targeting by legislation. So it is not a change in stance at all. It is just a comment that CPI excluding food and fuel has been difficult to bring down. Going forward, to work for bringing down inflation below 5% on a durable basis requires ex-food, fuel inflation also to come down,” he said.

When asked whether he is disappointed with the change in stance of RBI from accommodative to neutral, finance minister Arun Jaitley said: “All finance minister have a perpetual desire. But by end of the day, we all respect the decision that the RBI takes.”

In its policy statement, the RBI had said excluding food and fuel, inflation has been unyielding at 4.9% since September. “While some part of this inertial behaviour is attributable to the turnaround in international crude prices since October—which fed into prices of petrol and diesel embedded in transport and communication—a broad-based stickiness is discernible in inflation, particularly in housing, health, education, personal care and effects (excluding gold and silver) as well as miscellaneous goods and services consumed by households,” it said.

In a statement, RBI said Jaitley in his address to the central bank board emphasized the focus of the budget on rural sector, housing, infrastructure while continuing on the path of fiscal discipline, besides introduction of the goods and services tax and reduction of taxes for the small and medium enterprises sector. “The board complimented the finance minister on the Budget,” it added.

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