Bankers react to RBI's repo rate cut

Mumbai: Bankers have reacted with surprise to the Reserve Bank of India’s announcement of reduction in repo rate (key short-term lending rate) by 100 basis points. The rate cut is to be from immediate effect.

Bank of India has expressed that the repo rate cut is a big relief for the banking sector.

It also hoped that the lending will now become more viable.

Bank of Baroda spokesperson said that interest rates cannot come down overnight and that the deposit rates have to come down first.

"It is a good move, people will not feel strained and credit will be easier. The government wants the money to be available. Inflation expectations will come down," said the Executive Director of Bank of Baroda, V Santhana Raman.

The ICICI Bank has welcomed the repo rate cut. It said that the move by RBI signals its focus on ensuring sufficient liquidity and smooth functioning of financial markets to support growth. ICICI also adds that this is clearly an easing of monetary policy but the impact on lending and deposit rates will have to be seen over time.

HDFC Bank’s Chief Economist Abheek Barua said that he was surprised by the timing of the repo cut.

"It is an ongoing process and independent of the credit policy. This is a forward view on inflation and all the factors that lead to inflation are pointing downwards,” said the Managing Director of InduInd Bank, Ramesh Sobti to a television channel.

“Yes, certainly we are going to review cost of deposits and I'm sure cost of deposits is going to take a downward turn and we will also follow suit," assured the CMD of Federal Bank, M Venugopalan.

“It is a step in the right direction and an indication towards lower rates. The demand for money is there but supply is less. The central bank wants banks to do their normal business. Banks have not been able to lend because they did not have enough money," he added.

The infrastructure sector too welcomed the move. Unitech said that the cut should hopefully translate to cheaper home loans.

Housing giant DLF said it will definitely mean cheaper home loans in the near future.

RBI had earlier in the month slashed the Cash Reserve Ratio (CRR) by 250 basis points unlocking Rs 100,000 crore into the financial system.

The Finance Minister has expressed that the move will help lower interest rates and spur consumption to keep the economy ticking.

Finance Minister P Chidambaram told reporters in New Delhi that the move would be "beneficial" to borrowers and investors boost confidence in the economy.

He described the RBI decision as part of a series of measures to moderate inflation and to ensure economic growth.

"This is our hope, (it) will bring enthusiasm to the investors to continue to take forward their investment proposals," he said.

The repurchase rate will stand reduced at 8 per cent now. The RBI is scheduled to review the monetary policy on Friday.