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  3. RBI Governor nudges banks to cut lending rates

RBI Governor nudges banks to cut lending rates

13 Feb 2017 Evaluate

In order to push credit demand in laggard segments, Reserve Bank of India governor Urjit Patel nudged banks to cut their lending rates. He said that banks have immensely benefited from the influx of low-cost deposits that has come into the system post demonetisation, as well as the previous repo rate cuts by the apex bank.  

Urjit Patel also stated that the weighted average lending rate reduction has been significantly less and they feel that there is some scope for further reduction in lending rates for sectors like housing, personal etc. the reduction has been much more than for other sectors by the same bank. He also expressed his hope that there could be a cut in lending rates in some sectors where reduction has been relatively lower so far.

In its monetary policy review earlier this week, central bank retained the repo rate, at which it lends money to banks, at 6.25 per cent and the reverse repo rate at 5.75 per cent. However, between January 2015 and September 2016, RBI had reduced its repo rate by a total 1.75 percentage points. With regard to inflation, Patel said that there is no change in stance as far as retail inflation targeting is concerned.

RBI governor further said that the commentary in their monetary policy statement by the Monetary Policy Committee (MPC) was the observation that inflation ex-food and fuel has hardly bulged since September and if they want a further reduction in headline inflation it is going to be difficult. He added that so it is not a change of stance with respect to that at all, just a comment that since September CPI inflation ex-fuel and food has been difficult to bring down and going forward to go towards 4 per cent and away from 5 per cent on a durable basis requires that CPI ex-food and fuel to also come down. The MPC has been mandated to maintain retail inflation at 4 per cent (with plus/minus 2 per cent range) till 2021.

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