Interest Rate to Stay High as Bankers See No Rate Cut in FY15

Mumbai: Bankers on Tuesday said there is little chance of a rate cut in the remaining 2014-15 as the Reserve Bank of India (RBI) kept key policy rates unchanged, but cut SLR, in its bi-monthly monetary policy review.

Terming the RBI's stance as marginally hawkish, State Bank of India (SBI) chairperson Arundhati Bhattacharya said that the 6 per cent inflation target was challenging and that the apex bank was unlikely to cut rates this fiscal year (2014-15).

"The RBI policy statement today strikes a marginal hawkish tone with a firm eye on 6 per cent inflation target by January 2016. The 6 per cent retail inflation target looks challenging and to that extent, the RBI will hold rates at least till that time it is not breached," she said.

"Banks will thus need to factor possibly a prolonged policy pause in their decision-making."

RBI Governor Raghuram Rajan on Tuesday held key rates unchanged as expected but commentary over achieving the 6 per cent CPI number by January 2016, with an admission of it being an uphill task, seems to have frayed the bankers' sentiment.

Private sector lender Yes Bank chief economist Shubhada Rao said the "dovish" stance of the last policy statement has been dropped. She also said she does not expect any change to the repo rate, which stands at 8 per cent.     

"Interest rates are unlikely to come down in the near future. The status quo would continue for some time," Oriental Bank of Commerce CMD S L Bansal said.

Private sector lender ING Vysya's economist Upasna Bharadwaj also said the status quo will continue throughout the year, but welcomed the 0.50 per cent cut in SLR or banks' mandatory government bond holding requirements.

Foreign lender ANZ said there is a scope for the SLR to be lowered further.

Ms Bhattacharya said the move will provide up to Rs 40,000 crore in extra liquidity to the system.

Some analysts say this will be an inconsequential measure as banks already hold excess bond holdings. The SBI chairperson said the move to lower the held-to-maturity (HTM) ceiling by 0.50 per cent to 24 per cent of NDTL will also have little impact as most of the banks are holding less than 24 per cent in HTM.