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April 20, 2001
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Money > Business Headlines > Report April 20, 2001 |
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RBI to cut bank rates by 50 bps soonBS Banking Editor The Reserve Bank of India will soon cut the bank rate by at least 50 basis points. The twin factors of economic slowdown and the fourth dose of Fed rate cut on Thursday have left the central bank with no choice but to cut the bank rate once again over the next few weeks- even though RBI governor Bimal Jalan refused to commit himself on the rate front. The trigger point for the bank rate cut will be corporates' shift to the FCNR(B) loans, which will become cheaper following the cut in the FCNR(B) deposit rates by 50 basis points. The RBI has brought down the ceiling on the 1-3 year FCNR(B) deposits from 50 basis points over Libor or swap rates for the corresponding maturity. This will bring down the FCNR(B) loan rates, forcing the corporates to shift the focus from rupee loans. The central bank is expected to respond to this signal- that the domestic rate is not in sync with the overseas rates- and cut the benchmark bank rate. However, it may refrain from cutting banks' cash reserve ratio as the system is flush with liquidity. The stance of the monetary policy is to provide adequate liquidity to meet the credit growth and soften interest rates given the evolving situation. With the latest round of Fed rate cut, the gap between Fed rate and bank rate has widened to 2.5 percentage points. With the economic downturn being the RBI's gravest concern, Jalan has delayed the inevitable bank rate cut at best by a month, said an industry source. Powered by YOU MAY ALSO WANT TO READ:
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