Mar 05, 2009 11:45 AM
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Today again RBI has reduced REPO RATES. Interest rates on loans — for homes, cars and other kinds of consumer finance — are set to go down by another 0.5 percentage point .
Banks, which have been aggressively slashing rates of late, indicated after the announcement that they would pass on the RBI’s cuts to customers in the form of fresh reduction of interest rates. However, they would also cut interest rates on deposits by a corresponding amount.
SBI has emerged as the most aggressive player with a special scheme under which new home loan borrowers are being offered an 8% rate. Following Wednesday’s announcement, other banks may use the opportunity to come closer to the SBI rate.
( MSians Please Comment your Experience with this bank)
While its impact on the overall demand in the economy could take a little longer, it’s good news for borrowers. According to HDFC chairman Deepak Parekh, borrowing costs will come down across the board. “We may announce something at the end of the month, effective April 1,” he said. The country’s second largest lender, ICICI Bank is also positive on rate cuts. “RBI has sought to create conditions conducive to consumption and investments taking into account the global developments and their impact on India — slowdown on growth on the one hand and decline in inflation on the other,” said Chanda Kochhar, joint MD and CFO, ICICI Bank.
(MSians dealing with HDFC and ICICI may comment the reaction)
The market, however, had a to grapple with a somewhat misleading statement during the trading hours when Prime Minister’s economic advisory council (PMEAC) chairman Suresh Tendulkar said that the central bank may not tweak rates as banks are flush with funds. He felt that a rate cut may not help as banks are overcautious. According to sections in the bond market, the RBI’s decision, though well intended, was perhaps wrongly timed. “I am surprised... A rate cut sometime around March-end would have been more helpful. By then, Rs 34,000 crore borrowing would be over,” said Pradeep Madhav, MD of bond house STCI Primary Dealer.
Indeed, high government borrowing has prevented interest rates from coming down quickly and caused a drop in bond prices, prompting the RBI to announce a Rs 9,000-crore buyback of securities to support prices.
But clearly, Corporate India was getting impatient for a rate cut. FICCI president Harsh Pati Singhania said, “FICCI is waiting for a composite monetary stimulation package where reverse repo rate will be pushed down to 3%.”
SOME COMMENTS
"So by reducing repo and reverse repo rates the central bank has ensured not only that the cost of borrowing will come down but also banks now have less incentive to park surplus liquidity in (the) reverse repo window."
"I do not expect another rate cut till the next monetary policy. As it is, banks have started reducing interest rates on specific categories. So now the RBI will wait and watch how the banking industry responds to the policy rate cuts."
"This is in line with our expectations and I think this is a good move as money market rates spike during the (fiscal) year end."
"Reverse repo at 3.5 percent is the same as the interest rates on savings bank accounts, and so there is total disincentive for banks to park with the RBI under reverse repo window."
"This also reiterates RBI's commitment to low interest rates, in line with softening inflation and significant slowdown in growth indicators."
"This was expected. It was clear banks had not been lending through December and January. By adding more liquidity in the system, RBI is putting more pressure on interest rates."
My pain area is whether our loan providers adhere to RBI guidlines and pass this to the consumers or NOT. Is a there any control stick with RBI to protect Poor People seeking a roof over their heads?
