RBI slashes key rates; signals lower lending, borrowing rates

Mumbai, Apr 21 (PTI) Concerned over the slowing economy,
which it predicts to grow by six per cent this fiscal, Reserve
Bank of India (RBI) Tuesday further eased key short-term
lending and borrowing rates by 25 basis points and asked banks
to cut interest rates.

RBI Governor D Subbarao said the initiatives would
provide a "definitive signal" for cut in lending rates, in an
obvious bid to woo the commercial banks which have been
resisting lowering of interest rates.

For bringing in a low-interest regime, the banks should
first reduce the deposit rates to enable them to cut lending
rates, he said, while unveiling the annual monetary policy.

Taking the cue, largest private sector lender ICICI Bank
slashed benchmark home loan rate by 50 basis points to 13.25
per cent in tandem with lowering deposit rates by up to 50
basis points.

The 0.25 percentage points reduction in repo, the short-
term lending rate, and reverse repo, the overnight borrowing
rate, are expected to lead to cheaper home, auto and corporate
loans. The repo rate now stands at 4.75 per cent and reverse
repo at 3.25 per cent.

While the apex bank predicted slowing down of economy to
about six per cent in the current fiscal, from about seven per
cent in 2008-09, the industry said that the RBI steps were
below expectations

The central bank has projected the economy to grow by just
six per cent, against 6.5-6.7 per cent estimated for 2008-09.

Bankers said the policy was clearly aimed at easing
interest rates. "The policy stance of RBI indicates further
softening of interest rates," Oriental Bank of Commerce
Executive Director S C Sinha told PTI.

Housing finance major HDFC Ltd's Joint MD Renu Sud Karnad
also said that the RBI's measures reiterated the regulator's
stance in a slowing global economy and "a softening interest
rate environment."

"It is clearly, a pro-growth move," she said.

The impact of global economic crisis on India has been
"much more than expected earlier," Subbarao said, adding that
RBI has so far injected Rs 4,20,000 crore into the system and
would continue to maintain comfortable liquidity.

Karnad further said that whole-sale price inflation was
moving towards zero, but consumer price inflation was still
high and it "has put the regulator in a bit of a quandary."

RBI said that the WPI inflation was projected to remain
at around 3 per cent in the medium term and 4 per cent by the
end of March 2010.

After the bankers' meeting with RBI Governor, country's
biggest lender SBI's Chairman O P Bhatt said that economic
date indicated towards worst being over and the apex bank has
sent a clear for easing of interest rates.

SBI's asset-liability committee would decide whether its
interest rates needed to be revised, Bhatt said, adding that
different banks would respond differently. PTI TEAM