Kamath suggests rate cuts in view of falling inflation

Kamath suggests rate cuts in view of falling inflation
PTI
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First Published: Sun, Nov 16 2008. 09 55 PM IST

 Hopeful: K.V. Kamath says falling inflation should give RBI the confidence to roll back or signal a drop in interest rates. Ramesh Pathania / Mint
Hopeful: K.V. Kamath says falling inflation should give RBI the confidence to roll back or signal a drop in interest rates. Ramesh Pathania / Mint
Updated: Sun, Nov 16 2008. 09 55 PM IST
New Delhi: With inflation coming down to 8.98% for the week ended 1 November, the Confederation of Indian Industry (CII) chief K.V. Kamath on Sunday said key policy rates could be lowered to boost confidence of Indian companies and spur growth.
Hopeful: K.V. Kamath says falling inflation should give RBI the confidence to roll back or signal a drop in interest rates. Ramesh Pathania / Mint
“Interest rates are still high. Inflation has fallen to single digit, I think that would give confidence (to the Reserve Bank of India) to roll back or signal drop in interest rate,” Kamath said at the India Economic Summit organized by the World Economic Forum and CII.
The biggest challenge before the country, he said, was to keep the confidence level high amid the global financial crisis.
“I think India is in a distinctly different position. Challenge we have is how do we keep confidence in this global situation,” said Kamath, who also heads ICICI Bank Ltd.
Some other bankers have also expressed similar views.
“If the low inflation sustains for a period of two to three weeks, the Reserve Bank might reduce CRR (cash reserve ratio) and repo (repurchase) rates further...this may give room to banks to cut their interest rates again,” Bank of India’s chairman and managing director T.S. Narayanasami said.
UCO Bank chairman and managing director S.K. Goel said: “This (possible cut) may help banks to cut their BPLRs (benchmark prime lending rates) by 0.5 percentage point in the near term.”
Experts say receding inflation has raised hope for a further cut in the short-term lending (repo) rate by at least 50 basis points (bps). One basis point is one-hundredth of a percentage point.
“We see inflation at 5.5-6% by March. RBI can now more aggressively cut rates. I expect (a) 100bps repo rate cut this year. There could also be a reverse repo rate cut of 50bps,” said D.K. Joshi, principal economist at Crisil Ltd.
“I expect repo rate cut of 50bps in the near term. There could also be a possibility of 25bps cut in the reverse repo as well,” said Yes Bank Ltd chief economist Subhada Rao.
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First Published: Sun, Nov 16 2008. 09 55 PM IST