RBI holds repo rate despite "big bang" reforms
Mumbai September 18, 2012 (Reuters): The Reserve Bank of India
(RBI) left interest rates unchanged but cut the cash reserve ratio for
banks on Monday, disappointing market hopes that it would follow up
the government's unexpected spate of bold reform measures by reducing
borrowing costs. While the Reserve Bank of India praised New Delhi's
long-stalled policy initiatives to bolster growth and shore up its
creaking fiscal position, it said the primary focus of monetary policy
remained fighting stubbornly high inflation.
The government, in turn, made clear it wants a rate cut at the
bank's next monetary policy review in six weeks time, and said it was
not yet finished with reforms. "I am very confident that between
now and October 30, since the government is expected to take a number
of additional policy measures and also lay out the path of fiscal
correction, the response of RBI on October 30 will be far more
supportive of growth," Finance Minister P. Chidambaram told
reporters. The central bank held its policy repo rate at 8 percent, in
line with expectations in a Reuters poll taken on Friday, hours before
New Delhi said it would allow foreign direct investment in industries
including supermarkets and airlines. On Thursday, the government had
announced a sharp increase in the price of heavily subsidised diesel.
SBI cuts fixed deposit rates by 0.5-1%
September 5, 2012: Country's largest bank SBI on Wednesday announced
reduction in interest rate on fixed deposits by 0.5 per cent for most
of the maturity periods, a move likely to be followed by other
lenders. However, for deposits between 241 days and one year, the
downward revision is 1 per cent. The new rate would be 6.5 per cent as
against 7.5 per cent. Of the total 9 maturity periods for fixed
deposits, 0.5 per cent downward rate revision is for 6 categories.
The new rates would be effective from September 7, SBI
said in a statement. With the revision, the interest rate on 7-90 days
fixed deposit would come down to 6.50 per cent, from 7 per cent.
Similarly, term deposit 91-179 days would be down by 0.5 per cent, at
6.50 per cent and 180 days fixed deposits would also attract 6.50 per cent interest rate.
Fixed deposit with maturity of 181-240 days would now
provide interest rate of 6.50 per cent, down from 7.25 per cent. For
one year to less than 2 year maturity period fixed deposits, the new
rate will be to 8.5 per cent as against 9 per cent, down by 0.5 per
cent. At the same time, interest rate for fixed deposits with maturity
period between 2-3 years and 3-5 years has been slashed by 0.5 per
cent to 8.5 per cent. However, the bank has left interest rate
unchanged at 8.5 % for term deposit of 5-10 years.
About one million bank employees began a two-day strike on August 22
Mumbai, August 22, 2012 (Reuters): About one million bank employees began a two-day strike on August 22 to
protest against reforms that could ease mergers rules and allow more private capital into the sector, hitting banking transactions and some
market trading operations. The strike, involving mainly the staff of state-run banks that make up around 70% of the sector, came a day ahead
of an expected parliamentary approval to some changes in rules to allow bigger role for investors in banks.
Foreign ownership of Indian public sector banks is capped at 20%, and
some global banks have been pitching for a hike in their holding limit
to help them expand their presence in Asia's third-largest economy by acquiring the smaller regional banks.
India has struggled to reform and liberalise key sectors such as banking, retail and insurance, partly because of political opposition
and fears of the exploitation of domestic interests by foreign investors.
The strike, which forced No 1 lender State Bank of India to halt trading
in onshore spot foreign exchange markets, comes as another blow to the
economy that faces its worst slowdown in almost a decade. "Any move towards increasing the private sector role in the banking
sector is a big fear for the unions and that makes them oppose it," said
DH Pai Panandiker, the head of New Delhi-based think tank the RPG Foundation.
"The changes in the banking laws can improve the health of the banks quite
considerably," he said. "The unions fear if the government continues with the reforms their
positions will weaken and it will lead to job losses." The Indian parliament is likely to approve on Thursday amendments to
banking laws that include raising shareholders' voting rights limit in
private banks to 26% from 10%, a senior government source said.
RBI keeps policy rates unchanged, SLR cut to 23%
Mumbai, July 31,2012: The Reserve Bank of India (RBI) in its April-June quarter monetary
policy on Tuesday left the key policy rate unchanged. However, it cut the statutory liquidity ratio (SLR) to 23% from 24% earlier. This policy
action was by and large in-line with CNBC-TV18 poll. Now, the repo rate
or the rate at which banks borrow from RBI remained at 8% while the reverse repo rate at which, the banks lend to RBI stood at 7%.
SLR is the percentage of total deposits that lenders need to invest in
the government bonds. The reduction is aimed at ensuring free flow of credit growth through enough liquidity in the system.
Cash Reserve Ratio or CRR is the portion of total deposits that banks are required to keep with the central bank also remained unchanged.
"Keeping in view the slowdown in growth, the Reserve Bank frontloaded the policy rate reduction in April with a cut of 50 basis points. Subsequent
developments suggested that even as growth moderated, inflation remained
sticky. Keeping in view the heightening risks to inflation, the Reserve
Bank decided to pause in the Mid-Quarter Review (MQR) of June 2012, even
in the face of slowing growth," D Subbarao, the governor of RBI said in
the first quarter policy statement. After a gap of nearly three years, RBI had last cut policy rate by 50
bps in annual monetary policy announced on April 17.
Reserve Bank of India keeps repo rate, cash reserve ratio unchanged
New Delhi, June 18, 2012: The Reserve Bank of India (RBI) at its mid-quarter monetary
policy review on Monday kept the repo rate and the Cash Reserve Ratio
(CRR) unchanged at 8.0 per cent and 4.75 per cent, respectively, dashing
market hopes of a 25 basis point cut. The central bank said in a statement, "On the basis of an assessment of
the current macroeconomic situation, it has been decided to: keep the cash reserve ratio (CRR) of scheduled banks unchanged at 4.75 per cent
of their net demand and time liabilities; and keep the policy repo rate
under the liquidity adjustment facility (LAF) unchanged at 8.0 per cent."
The RBI statement added, "The Reserve Bank had frontloaded the policy
rate reduction in April with a cut of 50 basis points. This decision was
based on the premise that the process of fiscal consolidation critical
for inflation management would get under way, along with other supply-side initiatives.
"Our assessment of the current growth-inflation dynamic is that there are several factors responsible for the slowdown in activity,
particularly in investment, with the role of interest rates being relatively small.
Consequently, further reduction in the policy interest rate at this juncture, rather than supporting growth, could exacerbate
inflationary pressures." Prime Minister's Chief Economic Advisor Dr C Rangarajan said the central
bank had taken a very cautious stance. "The RBI has taken a very cautious stance. There wasn't enough room to cut rates."
After cutting its policy rate by 50 basis points to 8.00 per cent in April, the RBI had been widely expected to leave rates unchanged in
June. But global and domestic economic conditions have deteriorated sharply since then.
India's March quarter economic growth of 5.3 per cent was far worse than
expected and the weakest annual pace in nine years. The data sparked calls from industry for immediate action to lift an economy that
Standard & Poor's says could be the first BRIC nation to lose its investment-level credit rating.
April industrial output figures last week suggested little pickup in economic growth heading into the current quarter.
The government is politically hamstrung, so is unable to drive reform and its deep fiscal deficit leaves it no room to provide stimulus
spending at a time when the euro area debt crisis is weighing on the global economy, a factor set to dominate a G20 meeting in Mexico on
Monday and Tuesday. Source: IBNLive
SBI cuts fixed deposit rates by 0.25%
New Delhi, June 07, 2012 (PTI): Ahead of RBI's mid-quarter review of the monetary policy later this month, country's largest
lender State Bank of India (SBI) on Thursday slashed fixed deposit rates by 0.25% across select maturities. The bank has decided to
revise its retail term deposit interest rates with a reduction by 0.25% in tenors up to 240 days, SBI said in a statement. The new rates
would be effective from Friday. RBI is scheduled to announce mid-quarter review of monetary policy on June 18. It is expected that
the central bank may cut policy rate by by 0.25% to spur growth. Even RBI deputy Governor Subir Gokarn had said that there is a room to ease
policy stance in the light of moderating growth and falling crude oil prices. With the revision, the interest rate on 7-179 days fixed
deposit would come down to 7% from the existing 7.25%.
Even for 180 days term deposit, the interest rate would be 7%,
down 0.25%.The base rate or minimum lending rate of SBI stands at 10%. Base rate is the benchmark rate below which a bank cannot lend. The
bank last revised its fixed deposit rates in April. It slashed interest rates on fixed deposits by up to 1% across various
maturities. The decision had come following the RBI's decision to cut key interest rate by 0.5% to 8% in its annual credit policy during
RBI cuts repo rate to boost growth, first time in three years
Mumbai, April 17, 2012 (Retures): Reserve Bank of India cut interest rates on Tuesday for the first time
in three years by an unexpectedly sharp 50 basis points to give a boost to flagging economic growth but warned that there is limited scope for
further rate cuts. It also warned that current account deficit, which widened to 4.3% of
GDP in the December quarter, is "unsustainable" and will be difficult to finance given projections of lower capital flows to emerging markets in 2012.
Economy grew at 6.1% in the December quarter, its slowest in almost
three years, but the central bank had been reluctant to begin cutting rates as inflation remained elevated, and RBI Governor Duvvuri Subbarao
maintained a cautious view in his Tuesday policy statement. "It must be emphasised that the deviation of growth from its trend is
modest. At the same time, upside risks to inflation persist. These considerations inherently limit the space for further reduction in
policy rates," he said.
The RBI raised rates 13 times between March 2010 and October 2011 as it
struggled to contain price pressures. On Monday, the headline wholesale price index eased slightly to 6.89%
for March but was still above expectations, as a drop in manufacturing
inflation was offset by a surge in food inflation. On Tuesday, the RBI left unchanged the cash reserve ratio (CRR), the
share of deposits that banks must hold with the central bank, at 4.75%,
in line with expectations, after cutting it by 125 basis points since
January to ease tight market liquidity. Subbarao said liquidity conditions are moving towards normal after
several months of acute shortage of cash in the banking system, but also
said the RBI would take "appropriate and proactive" steps if needed to restore liquidity to comfortable levels.
The central bank said its baseline expectation for GDP growth in the
fiscal year that ends in March 2013 is 7.3%, compared with an expected
6.9% in the just-completed year. It expects headline inflation to end the year at 6.5%, with little deviation expected during the year.
Sluggish capital investment has exacerbated bottlenecks in the Indian economy, bringing down its capacity for non-inflationary growth to an
estimated 7%, from 8.5% before the global financial crisis. Supply shortages persist in infrastructure, energy, minerals and skilled
labour. "A strategy to increase the economy's potential by focusing on these
constraints is an imperative," Subbarao said. He also reiterated the need for the government to cap a subsidy burden,
which led to a bloating of the fiscal deficit in the recent fiscal year to 5.9% of GDP.
A weakened government has been unwilling to pass along the price of
higher global oil prices to end-users, but pressure on the fiscal deficit is expected to force it to do so.
"From the perspective of vulnerabilities emerging from the fiscal and current account deficits, it is imperative for macroeconomic stability
that administered prices of petroleum products are increased to reflect their true costs of production," he said.
cuts CRR by 75 bps to 4.75 pc effective from March 10, 2012
Mumbai, March 10, 2012 (Reuters): The Reserve Bank of India on
Friday cut its cash reserve ratio a week earlier and more sharply than
expected to help ease tight liquidity conditions in the banking
system. The central bank cut the cash reserve ratio, the share of
deposits banks must hold with the central bank, by 75 basis points to
4.75%, effective Saturday. The RBI's mid-quarter policy review is
scheduled for Thursday, and market watchers had widely expected it to
cut the CRR by 50 basis points then. The central bank is expected to
begin cutting interest rates in coming months as both economic growth
and inflation slow, but few in the market expect it to do so as soon as next week.
"The CRR cut was done to address the structural liquidity
problem and does not mean a change in stance in terms of rate
cut," said Nirav Dalal, president and managing director of debt
capital markets at Yes Bank. "It only goes hand-in-hand with
RBI's stated policy stance that interest rates have peaked.
The move would likely lead to short-end swap rates falling more
than the long end and facilitate steepening of the yield curve, Dala
said. "But since this doesn't change anything in terms of rate
cut expectation, I don't expect the 10-year bond yield to fall much on Monday," Dala said.
Friday's move follows a 50 basis point CRR cut in January,
which was the first move in the rate since it was increased to 6
percent in April 2010. The cut will inject about 480 billion rupees
($9.63 billion) of liquidity into the banking system, which the RBI
said had been on track for a worsening liquidity deficit in the second
week of March, partly because of advance tax outflows. "The
overall deficit in the system persists above the comfort level of the
Reserve Bank," the RBI said in a statement. "Accordingly, it
has been decided to inject permanent primary liquidity into the system
by reducing the CRR so as to ensure smooth flow of credit to
productive sectors of the economy."
RBI hikes bank rate after nine years to 9.5%
MUMBAI, February 14, 2012: After a gap of nearly nine years, the Reserve Bank has increased
the bank rate by 3.50 percentage points to 9.5 per cent with immediate effect.
"This (the increase) should be viewed and understood as one-time technical adjustment to align the Bank Rate with the marginal standing
facility (MSF) rate rather than a change in the monetary policy stance," RBI said in a
notification, adding the new rate will be effective from February 13. The Bank Rate has lost its significant as a monetary policy tool as the
central bank presently signals stance through changes in repo, the rate
at which banks borrow short-term funds from RBI. The Bank Rate, which is the standard rate at which the RBI buys or
re-discount bills of exchange or other commercial paper, is presently used as a penal rate which the banks have to pay for their failure to
meet the mandatory Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR).
The Bank Rate, which has been increased by 350 basis points 9.50 per
cent was kept unchanged since April 2003. According to RBI, it should technically be be higher than the repo rate,
which is the policy rate. The repo rate currently stands at 8.5 per cent, while the reverse repo rate is 7.5 per cent.
It was kept unchanged, "mainly for the reason that monetary policy signalling was done through modulations in the reverse repo rate and the
repo rate under the Liquidity Adjustment Facility (till May 3, 2011) and
the policy repo rate under the revised operating procedure of monetary policy (from May 3, 2011 onwards)", the RBI said.
Moreover, it added, "under the revised operating procedure, MSF,
instituted at 100 basis points above the policy repo rate, has been in
operation, which in many ways serves the purpose of the Bank Rate."
While the policy repo rate and the MSF rate have become operational, the
bank rate continued to remain at 6 per cent. The Bank Rate is also used by several other organisations as a reference
rate for indexation purposes. The RBI said that it has has consulted various stakeholders relying on
the Bank Rate as a reference rate before arriving at the decision to revise it.
"Based on the feedback received, it is determined that the Bank Rate should normally stay aligned to the MSF rate," it said. Source: The Economic Times
RBI cuts CRR, leaves lending rate unchanged
Mumbai, January 24, 2012 (PTI): The Reserve Bank of India
Tuesday injected Rs 32,000 crore into the system by lowering the cash
reserve ratio (CRR) by half-a-percentage point but kept the short-term
lending rate unchanged in view of persisting inflationary concerns.
"Based on the current inflation trajectory, including
consideration of suppressed inflation, it is premature to begin
reducing the policy rate," RBI Governor D Subbarao said while
unveiling the third quarterly monetary policy review.
With the additional liquidity created by the CRR cut, there is
a possibility that banks may reduce the interest rate to attract
borrowers. Projecting a lower growth of 7 per cent for 2011-12, the
Reserve Bank said the policy actions are meant to "mitigate
downside risks to growth" and anchor inflationary expectations.
The CRR, the amount of deposits the banks are required to keep with
RBI in cash, has been reduced to 5.5 per cent from 6 per cent with
effect from January 28, releasing Rs 32,000 crore in the system to
ease the liquidity problems. The short-term lending rate (repo) has
been kept unchanged at 8.5 per cent. The stock market reacted
positively to the policy announcement and banking stocks, in
particular, shot up. The RBI kept the repo or the short-term lending
rate at 8.5 per cent while making it clear that any cut in it will
only happen after moderation in inflation.
The central bank expects the headline inflation to moderate to
7 per cent by March, but there are concerns over the persistently high
prices of non-food manufacturing items. On CRR cut, RBI said,
"Persistence of tight liquidity conditions could disrupt credit
flow and further exacerbate growth risks. CRR is the most effective
instrument for permanent liquidity injections." It indicated that
future rate actions could see more lowering on the front. Apart from
easing liquidity pressures, the RBI said the policy actions are aimed
at mitigating downside risks to growth and anchoring medium term