Stating the Reserve Bank’s credit policy to be “on expected lines”, bankers today said the RBI could cut key policy rates and ratios in the months to come with demand for credit picking up and inflation remaining subdued.
The RBI in its third quarterly review of the credit policy announced today kept key policy rates and reserve ratios unchanged, while lowered the GDP forecast to 7 per cent from 7.5 to 8 per cent earlier.
According to Bank of Baroda Chief Economist Rupa Rege Nisture, the RBI had already cut rates substantially and banks have responded to the extent possible.
In the present slowdown, fiscal measures are more relevant to address demand management rather than monetary policy, she said, adding interest rate cuts will have only a limited role in boosting demand.
However, HDFC Bank Chief economist Abheek Barua said, “I am a little disappointed because I was expecting a cut in policy rate.”
At the same time, the RBI is clear that it will respond to any adverse development and so more cuts outside the policy are likely, Barua added.
Commenting on growth projections for the current fiscal, ICRIER Chief Executive Rajiv Kumar said, “It is good to know that the RBI has now become realistic in GDP growth prospects and has revised estimates downwards to 7 per cent.”
The projections, he added, “in my view this is still being optimistic and it will be better if the policy stand in future is based on a lower estimate of GDP growth for 2009-10.”
The RBI in the past has taken a series of measures which have effect on the economy with a lag. By not tinkering with rates, the apex bank is carefully watching the steps it had taken in the past, Kaul said.
The central bank through a set of monetary measures since October has made a provision for Rs 3,88,000 crore.
At the same time, the short-term lending (repo) rate has been reduced by 350 basis points to 5.5 per cent while the short-term borrowing (reverse repo) rate has been reduced by 200 basis points to 4 per cent.
