Banks expect rate cuts in July; rule out cut in lending

Ruling out the possibility of cutting lending rates after Reserve Bank kept key rates unchanged, bankers said on Monday the central bank decision to hold the rates was on expected lines given the troubles on rupee and high current account deficit.

Describing RBI policy as not surprising, State Bank of India Managing Director and Chief Financial Officer Diwakar Gupta said there is room for the central bank to look at the long-term and not too much on the short-term issues like rupee fall and the CAD.

"Therefore, I expect them to do something on the next policy day as inflation is under control," he said, adding that food inflation is a structural issue and not driven by money supply.

On the changing concerns of RBI, which for too long has been harping on the high current account deficit and now is expressing concerns over balance of payments, Gupta said: "Our problems on the BoP will remain so long as we remain a services-driven

economy and not a manufacturing one."

"The recent depreciation of the rupee and the absence of any uncertainty about its future course warranted holding action by the RBI," HDFC Bank said in a statement.

"Prudence pays, especially for a central bank that's attempting to manage an economy buffeted by adverse external pressures and extreme uncertainty in the global policy environment," it added.

Bank of India CMD V R Iyer said the RBI move to hold the repo rate at 7.25 per cent was expected given the troubles on the rupee and the current account deficit.

"There will be no change in lending rate as the cost of deposits continues to be very high," she told PTI.