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Economy Dec 16, 2012

Bankers pitch for rate cut in RBI policy review next week

New Delhi: Buoyed by fall in inflation, bankers have stepped up their demand for a cut in interest rate by the Reserve Bank in its mid-quarter review of monetary policy on Tuesday.

Industry leaders too have been demanding a cut in interest rate to prop up growth and investment. According to SBI Managing Director Diwakar Gupta, RBI should consider cutting both repo rate and the cash reserve ratio (CRR).

"As a banker I can always say that our wish-list is that rate should change, they should reduce. Both repo and CRR," he said. Repo is the rate at which RBI lends money to the banks. It stands at 8 percent at present.

CRR is the portion of deposits banks have to mandatorily park with RBI, which is 4.25 percent now. Reuters

"CRR has already been brought down significantly by the Reserve Bank, if they do a little more that will be great. Repo cut will actually bring down rate systematically in the system. So, deposits will be cheaper therefore people will lend cheaper. Overall there will be a downward bias which has been required," he said.

CRR is the portion of deposits banks have to mandatorily park with RBI, which is 4.25 percent now. Meanwhile inflation declined to 10-month low of 7.24 percent in November from 7.45 percent in the previous month.

At the same time, the economic growth in the first half of the fiscal fell to 5.4 percent, against 7.3 percent in the corresponding period a year ago. The growth in 2011-12 fell to a nine-year low of 6.5 percent.

Indian Overseas Bank Chairman and Managing Director M Narendra said, "...as on date since liquidity still has been slightly tight, I think there will be some more support to liquidity."

"We will not be surprised if there will also be a symbolic repo rate cut now and a major cut in January also," he said. "I expect that there should be some reduction in policy rates. It will boost up the sentiment and economic sentiment," Union Bank of India Chairman and Managing Director D Sarkar said.

There is expectation that repo rate or CRR could come down by about 25 basis points, he said. On concerns of sticky inflation, the RBI had left key policy rates unchanged in its last quarterly review of the monetary policy in October but hinted at easing monetary policy further in the January- March quarter.

"As inflation eases further, there will be an opportunity for monetary policy to act in conjunction with fiscal and other measures to mitigate the growth risks and take the economy to a sustained higher growth trajectory," RBI Governor D Subbarao had said in October policy review.

PTI


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