Home Market Impact of RBI rate cuts to remain muted

Impact of RBI rate cuts to remain muted


Kolkata: The half a dozen banks which had lowered marginal cost based lending rate (MCLR) in March are likely to abstain from further rate action despite Reserve Bank of Indias signal for easier financing cost.

The rest including the bigger ones State Bank of India and HDFC Bank have taken the plunge with 5-10 basis points reduction in benchmark rate following RBI's second successive repo rate cut on April 4 but these are way below what was signaled by the central bank.

RBI has reduced the repo rate by a total of 50 bps in 2019 to push economic growth while banks are facing difficulty in passing on the benefit as deposit rates remain sticky.

“Banks are not lowering their rates as deposit rates need to be lowered first. This cannot be done given the slow growth in deposits as households have shifted to equities and mutual funds. Currently, to meet their credit requirements they have been sourcing corporate deposits at a higher rate,” said Madan Sabnavis, chief economist with CARE Ratings.

RBI Governor Shaktikanta Das said he would hold “further consultations with stakeholders and work out an effective mechanism for transmission of rates.”

Lenders such as ICICI Bank, Bank of Baroda, Punjab National Bank and Union Bank of India reduced their respective MCLR by 5-10 bps in the next 40 days after RBIs February policy action. “These may not go for further rate cuts,” a chief executive of a public sector bank said.

Axis Bank, HDFC Bank, ICICI Bank and YES Bank did not respond to mails seeking comments on their interest rate strategy.

“The present scene only shows that monetary transmission cannot be enforced but has to happen throughRead More – Source