Bankers do not expect RBI rate cuts soon, as inflation plummets

NEW DELHI: Amid the louder demand for cut in policy rates by the Reserve Bank after inflation declining to more than three decade low of 0.44 per cent, bankers today said they do not see the possibility of an immediate monetary easing by the apex bank.

Oriental Bank of Commerce Executive Director Ratnakar Hegde said today, "I don't see any rate cut, at least now. There is no liquidity problem in the market."

While, Punjab National Bank Treasury Head Arun Kaul said various factors have to be assessed to see if the further rate cuts are required.

"RBI has already done a lot of rate cutting. It has taken fairly large steps... It is all a wait and watch thing now. Various factors like demand and supply have to be seen to know if further rate cut is required," Kaul said.

Private sector lender Yes Bank Chief Economist Shubhada Rao also said high retail price inflation presents a difficult choice before RBI to go for rates cut, even as wholesale price inflation has come down.

"On the RBI policy cut, there is a dilemma as the consumer price index is still above 9 per cent," She said.

Inflation fell to 0.44 per cent in the first week of March and is expected to turn into negative territory soon due to high base effect, that is the impact of high inflation numbers in the corresponding period of last year.

"The inflation was expected to fall below one per cent and it is likely to go below zero per cent. I think it is due to very high base affect. It will come out of this zone," Arun Kaul said.

Industry chambers have attributed fall in inflation to slackening demand and has sought further rate cuts by the RBI.

"We see that there is a lack of demand with high levels of inventory that has led to downward pressure on commodity prices ... We need more credit flow for industry," CII Director-General Chandrajeet Banerjee said.

However, financial services firm Nomura expected the apex bank to reduce short term lending and borrowing rates by 100 basis points.

"We expect another 100 basis points cuts in the repo and reverse repo rates...due to rising real interest rates and as monetary policy is the only tool to offset weakening demand until the May elections," Nomura Financial Advisory and Secruties (India) said in a statement here.

After the Lehman Brothers declared bankruptcy in mid-September last year, the Reserve Bank had slashed policy rates and the cash reserve ratio drastically to infuse liquidity in the market.

While the apex banker slashed its short term lending rate (reverse repo) by 5.5 percentage points to 3.5 per cent, it lowered its short term borrowing rate by one percentage point to 3.5 per cent.

Besides, the requirements for banks to keep money with RBI has been reduced by four percentage points to 5 percentage points of banks deposits.