Bankers today said the sharp fall in inflation to 3.78 per cent for July has raised hopes of another rate cut by the Reserve Bank at the September review of the policy.
“Obviously, if more and more positive news on inflation front comes, it’s a reasonable expectation to expect that rates will be cut at the September policy,” HDFC Bank’s Managing Director Aditya Puri told reporters outside RBI here.
He said Governor Raghuram Rajan had earlier said that the RBI is “actively looking” at a rate cut.
Bank of India’s Chief Executive and Managing Director B P Sharma said bankers have always been asking for a rate cut and the lower inflation reading only heightens their hopes.
“Everybody is hopeful and (if) it continues, we expect a rate cut,” he said.
It can be noted that after it turned confident on the inflation front early this year, the RBI cut its key rates by 0.75 per cent in 2015.
Apart from further softening in inflation, the RBI said transmission of its policy rates into lending by banks, impact of the monsoons and the US Fed’s stance will be the key factors it will look out for.
On transmission, where the RBI says banks have passed only 0.30 per cent in their lending rates as against its 0.75 per cent in cuts, Puri conceded that more rate cuts are required.
Sharma said his bank has already cut its base rate to 9.95 per cent and does not have more room to cut further at present, because the cost of deposits takes time to get repriced.
A base rate cut is possible only after the cost of deposits come down, he added.