Mumbai: With the inflation declining even below the RBI’s comfort levels, the Reserve Bank is likely to cut the lending rate for banks and reduce the amount banks need to keep with the Central Bank ‘anytime from now’ to support demand, bankers have said.
“A 0.5-1% cut in the reverse repo rate could be expected anytime now following the sharp decline in inflation numbers. This would be needed to support the falling demand in different sectors owing to a global economic slow down,” HDFC Bank’s Deputy Head of Treasury Ashish Parthasarathy said here.
The Reserve Bank 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 amount banks need to park with the Central Bank by 3.5% to 5.5% from 9% besides cutting the repo, reverse repo rates to 6.5% and 5% respectively.
Echoing a similar view, Vijaya Bank’s executive director, K C Kalia said the Central Bank is expected to reduce its key rates by 0.5-1% in the near future in view of the slowdown in different sectors.
“A 1% cut in repo, reverse repo rates are likely with the inflation declining to 6.61%. I expect this to happen in the near term,” Kalia said.
Meanwhile, the fears of inflation declining below 2% by the second quarter of 2009 next year is also looming large, which, if happens, will require measures from the Central Bank to support the inflation rate, Chief Financial Officer of a leading private sector bank said.
“If the current pace (of fall in inflation) continues, it is very likely that the economy will face the phenomenon of deflation for a short while some time in the first half of 2009,” the official said.