Banks may not tinker with lending, deposit rates for now

Bankers were pleasantly surprised on Wednesday as the RBI kept the key interest rates unchanged in the mid-quarter monetary policy review. Amid flat credit demand and comfortable liquidity conditions, banks are unlikely to change their lending and deposit rates for now.

Reactions from bankers and economists:

Arundhati Bhattacharya, Chairperson, SBI : It is a pragmatic policy considering that vegetable prices are falling and taking into account weak growth. It is an absolutely correct decision to wait for a month before taking any step on key interest rates....SBI may revise bulk deposit rates and revisit the spread over the base rate.

Chanda Kochhar, Managing Director and CEO, ICICI Bank : The decision to keep the policy rates unchanged is welcome in view of the continued risks to growth and keeping in mind the possibility of softening food inflation and the lagged effect of earlier rate increases. In view of the current macro situation, the RBI’s commitment to managing adequate systemic liquidity and its balanced approach to growth and inflation should be seen as positives for economic recovery and stability.

S. S. Mundra, CMD, Bank of Baroda : It will be a status quo on deposit and lending rates and we will wait-and-watch. Credit demand is subdued and liquidity is comfortable as of now. If one of the two variables — liquidity or credit demand — changes, only then will the need arise to review the interest rates.

S. L. Bansal, CMD, Oriental Bank of Commerce : The RBI’s policy announcement is a “positive surprise” for us and it appears also for the markets. We have no plans to change both lending and deposit rates for now. There will be stability in interest rates.

Shailendra Bhandari, MD and CEO, ING Vysya Bank : The policy has accorded a ‘stay’ on further rate hikes contingent upon inflation moderation. All participants will welcome this pragmatic approach, which brings us closer to the peak of the current interest-rate cycle.

V. Srinivasan, Executive Director, Axis Bank : The policy adopted a ‘wait-and-watch’ approach against the backdrop of a potentially transient food inflation spike and continued weakness on the growth front. This approach is very pragmatic and further policy action would be purely based on data clarity, both domestic and global.

M. Narendra, CMD, Indian Overseas Bank : The RBI’s action to pause on policy rates is a welcome and prudent move at the present juncture. The future events and data like the US FOMC’s actions on QE tapering, softening of food inflation, etc., assume more importance and would determine future direction in the policy rates. Money market conditions are likely to continue at the present level for the time being. The bond yields are likely to soften with an eye on future data.

Shubhada Rao, Chief Economist, YES Bank : The RBI has judiciously opted for caution and avoided any premature reaction before it has concrete evidence of persistent inflationary pressures.

While we continue to anticipate another 25 bps hike in the repo rate, post today’s policy review, we now expect the same to happen in January 2014. The shift in the timing of rate hike expectation will also provide a tactical advantage as it would bolster India’s preparedness for the start of unwinding of stimulus by the US Fed.