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Tuesday's monetary policy could well be the harbinger of positive sentiments, bankers told Business Line .
The policy's focus is on liquidity management, said Mr S. Raman, Chairman and Managing Director, Canara Bank . The RBI has projected inflation levels to be around 7 per cent by March this year.
“If it's not close to the zone of comfort, and liquidity continuing to be tight, there could be more action on the CRR front,” he said. If the target rate is achieved, “they could fleetingly consider action on repo rates,” he explained. The reduction in CRR and the resultant infusion of Rs 32,000 crore into the system is a “good positive” for the banking system, he said.
“With liquidity improvement, banks will borrow less, and thus their profitability and ability to lend will improve,” said Mr H.S. Upendra Kamath, Chairman and Managing Director, Vijaya Bank . During the fourth quarter, banks witness a better credit pick-up and hence will need more funds. “In the recent past, borrowing under the liquidity adjustment facility (LAF) had crossed Rs 1.5 lakh crore, which was an indicator of liquidity constraints,” he added.
More than addressing liquidity constraints, sentiments will now start improving, he pointed out.
Mr Raman added that this policy could well be the “starting point to the change in sentiments and of optimism in the system”.
Mr Kamath pointed out that the RBI has not increased the key rates for the second time in a row. Though the RBI has scaled down credit growth levels to about 16 per cent, “we at Vijaya Bank expect a credit growth upwards of 18 per cent,” he said. On interest rates, he said that banks will start reducing interest rates in tandem with RBI's rate reduction.
Ms Upasna Bharadwaj, Economist, ING Vysya Bank, expects the RBI to keep the repo rate unchanged till March 2012, “as the impact of easing demand pressures would begin to show up more clearly in the momentum in core inflation providing more flexibility to the Central Bank in taking action”. The trend in structural liquidity deficit will also need to be closely monitored going forward, to consider the need for further cut in CRR, she added.
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