Mumbai: Stating the Reserve Bank’s credit policy to be “on expected lines”, bankers on Tuesday said the RBI could cut key policy rates and ratios in the months to come with demand for credit picking up and inflation remaining subdued.
“Keeping the interest rates unchanged in the third quarterly review of the monetary policy is on expected lines, but rate cuts, going forward, cannot be ruled out as inflation is easing,” said Oriental Bank of Commerce (OBC) executive director S C Sinha.
Expressing a similar view, Punjab National Bank chief general manager Arun Kaul said, “As RBI has changed policy rates without waiting for the credit policy, if need be similar actions could be anticipated in the weeks to come.”
The RBI in its third quarterly review of the credit policy announced on Tuesday kept key policy rates and reserve ratios unchanged, while lowered the GDP forecast to 7% from 7.5 to 8% earlier.
According to Bank of Baroda chief economist Rupa Rege Nisture, the RBI had already cut rates substantially and banks have responded to the extent possible.
In the present slowdown, fiscal measures are more relevant to address demand management rather than monetary policy, she said, adding interest rate cuts will have only a limited role in boosting demand.
However, HDFC Bank chief economist Abheek Barua said, “I am a little disappointed because I was expecting a cut in policy rate.”
At the same time, the RBI is clear that it will respond to any adverse development and so more cuts outside the policy are likely, Barua added.
Commenting on growth projections for the current fiscal, ICRIER chief executive Rajiv Kumar said, “It is good to know that the RBI has now become realistic in GDP growth prospects and has revised estimates downwards to 7%.”
The projections, he added, “in my view this is still being optimistic and it will be better if the policy stand in future is based on a lower estimate of GDP growth for 2009-10.”
RBI in the past has taken a series of measures which have effect on the economy with a lag. By not tinkering with rates, the apex bank is carefully watching the steps it had taken in the past, Kaul said.
Through a set of monetary measures since October the RBI has made a provision for Rs3,88,000 crore.
At the same time, the short-term lending (repo) rate has been reduced by 350 basis points to 5.5% while the short-term borrowing (reverse repo) rate has been reduced by 200 basis points to 4%.