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Our Bureau

Mumbai, Dec. 4 The Reserve Bank of India is expected to announce another set of measures, including a rate cut, on Saturday, as part of its efforts to boost demand in the economy.

The central bank has called a press conference on December 6 which will be addressed by the Governor, Dr D. Subbarao.

The market has been expecting a sharp cut in reverse repo by the RBI to prevent banks from parking their surplus funds with it or invest in government securities, instead of lending.

Banks have been deploying huge surpluses, almost to the tune of around Rs 50,000 crore, since the last few days at the RBI’s reverse repo window. This is a clear sign that banks are more comfortable earning 6 per cent interest by parking funds with RBI than lending. Another sign of banks’ risk aversion is that, off late, the government securities market has been recording a robust turnover, averaging around Rs 10,000-Rs 15,000 crore daily.

Inflation has also eased to a seven-month low. The Wholesale Price Index (WPI) based inflation has come off to 8.40 per cent in the week ended November 22 as compared to 8.84 per cent noted in the previous week. Softer inflation will give the central bank headroom to pare signal rates. “We expect the RBI to cut the reverse repo and repo by around 100 basis points each. The cut in reverse repo rate will force the banks to go back to their core function of lending. It is unlikely that the RBI will tinker with CRR and SLR,” said a dealer with a public sector.

The government securities market has already discounted the rate cut by the RBI with prices going up by almost two rupees on Wednesday. On Thursday, profit booking resulted in prices coming off by 50 paise to a rupee.

More Stories on : Interest Rates | RBI & Other Central Banks

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