MUMBAI: The Reserve Bank of India (RBI) on Tuesday raised its key interest rates by up to 0.5 per cent to check double digit inflation and predicted dearer interest regime, but banks said they would wait for now.
Most banks, including market leader SBI and ICICI Bank said though RBI steps had put pressure, they would not raise interest rates immediately. As a result, commercial, auto and home loan rates would not change soon, contrary to industry’s apprehensions.
In its quarterly review of the policy, the Reserve Bank increased the short-term lending rate (repo) by 0.25 per cent to 5.75 per cent and short-term borrowing rate (reverse repo) by 0.50 per cent to 4.50 per cent though it kept cash reserve ratio (CRR), the portion of funds that banks keep with the central bank, and bank (long-term) rate unchanged.
RBI had earlier on July 2 hiked repo and reverse repo rates by 25 basis points and
Tuesday’s hike was the fifth since January to combat inflation which is in double digits for the fifth month now.
The Finance Minister, Mr Pranab Mukherjee hoped that steps taken by the RBI will check inflation without hurting growth. RBI Governor, Mr D Subbarao however said, “We expect credit to be dearer…As credit demand picks up, we expect lending and deposit rates to go up.”
Leading bankers on Tuesday ruled out any rise in interest rate regime in the second quarter despite the increased pressure on the rates following the Reserve Bank policy action. Admitting that the Reserve Bank decision to raise the short-term lending (repo) and borrowing (reverse repo) rates will increase pressure on interest rates, bankers said they will take a call on interest rates in October when they expect an uptick in credit demand.
“No immediate impact on the interest rate. In Q2 interest rate won’t go up by and large,” State Bank chairman, Mr O P Bhatt told reporters after the monetary policy. Increase in lending rates will be followed by hike in deposit rates, he said, adding, it is difficult to state for the banking industry as each bank would take a call depending on its asset liability position.
Canara Bank chairman and managing director, Mr A C Mahajan said, “I don’t see interest rates going up before October.” Acknowledging that excess liquidity has disappeared from the system, ICICI Bank chief executive and managing director, Ms Chanda Kochhar said interest rates depend not only on policy measures but also on the liquidity situation. “We are already witnessing a rise in interest rates for wholesale deposits,” she said, adding “in the immediate future, I don’t see any (upward) move on interest rates but as we go forward we will definitely see something on that line.”