The Hindu Business Line : Divergent views on lending rates

Mr Abheek Barua, Chief Economist, HDFC Bank, said short-term deposit and lending rates might harden. Removal of limit on reverse repo lending will cause short-term interest rates to move up sharply.

There will still be surplus cash left in the system and this should keep long-term yields in check. “In short, we are looking at a much flatter yield curve in the near term,” Mr Barua said.

Mr Ananda Bhoumik, Senior Director, Fitch Ratings, said banks would be loath to raise lending rates, especially in retail loans, since rising rates in recent quarters have hit repayments and forced delinquencies.

A slight reduction in net interest margin (about 4-5 basis points) is a given, though expected increase in call rates could partly help bridge the gap.

Mr D.K. Joshi, Director and Principal Economist, Crisil, said that the policy squarely addresses the problem of excess liquidity and inflationary expectations.

This will bring call rates closer to reverse repo rates. The RBI has also kept an option open to conduct repo/reverse repo auctions at fixed or variable rates as circumstances warranted.

The overall policy is a clear signal of continuation of the tight monetary stance. Interest rates are expected to stay stable with 10 year G-secs in the range of 7.8-8 per cent during the rest of the fiscal.

Mr Jayesh Mehta, Managing Director and Head-Investor Client Coverage Group, DSP Merrill Lynch, said the CRR hike will only extract the liquidity already infused by the RBI’s forex intervention. Removal of reverse repo cap should help normalise overnight rates and align yields to more realistic levels.

On inflation, Mr Barua said the RBI moves were an effort to pre-empt inflationary pressures that easy liquidity and low short-term rates could foster. Fears of rupee appreciation on the back of these measures are exaggerated.

According to Mr Bhoumik, the war on inflation front is not over and future monetary stance would be, therefore, likely to remain watchful.

But, Mr Mehta said inflation was now well under control and inflation expectations too had moderated. The sharp rise in credit has also slowed significantly making the policy review largely a ‘liquidity review.’

“We expect markets to stabilise after today’s reaction as the soft patch in the economy and low inflation should keep rates from rising further,” he said.

More Stories on : CRR & Bank Rates | Credit Policy | Interest Rates

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