Leading bankers on yesterday met RBI top brass, impressing upon them the need to shift focus of monetary policy to growth and sought reduction in the repo rate and the cash reserve ratio by 0.5 per cent. While inflation concerns remain, growth is a bigger concern. While they understand the issues related to inflation at this point of time, it was our recommendation that there should be a rate cut so that growth comes first. Speaking after the customary pre-policy meeting with RBI brass, that bankers have asked for a cut in both repo and CRR the portion of deposits banks have to mandatorily park with the central bank in the upcoming policy review.
The bankers have urged the RBI to reduce interest rates by 50 basis points at least. Even the CRR should come down by 25 to 50 basis points. One basis point is equal to 0.01 per cent. The body’s chairman and CMD of Punjab National Bank. If the rate of interest is reduced, probably the transmission will happen. Bankers have already been saying that transmission will happen if there is a rate cut. Reduction in rates would help in increase in investment, which would boost credit growth. If both these rates are lowered, it will send a positive signal to market.
If both these things happen, transmission will happen and it will be a good sign to the market that growth is going to happen in a big way. The likelihood of a rate cut became strong with manufacturing growth remaining in the negative terrain and WPI-based headline inflation hitting a three year low at 7.18 per cent in December. RBI Governor D Subbarao had in the October policy as well as at the subsequent mid quarter review had hinted at a rate cut in the January policy.
On the poor deposit growth. Sluggish deposit growth is a matter of concern to the bankers. Credit is also not picking up the way it should and hovering around 8 per cent now. According to Ramakrishnan, both bankers and the central bank are concerned about rising bad assets in the system. About the recent suggestion to pay interest on current account, there was a passing mention regarding this with the apex bank at the meeting.