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July 11, 2001
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Money > Reuters > Report July 11, 2001 |
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RBI unlikely to cut rates soon: OfficialThe Reserve Bank of India is unlikely to cut its benchmark bank rate soon to boost the country's slowing economy, a monetary official said on Wednesday. "A bank rate cut is not even being discussed now. There is enough liquidity and funds are available," the official who declined to be identified told Reuters. Indian markets have been speculating on an RBI rate cut ever since the US Fed Reserve lowered rates in May. Bond yields, currently at historic lows, have already discounted a possible half point cut in the bank rate, currently at seven per cent, debt traders say. "We need not follow the US in cutting interest rates. There, it is serving a purpose (reviving the economy). Here, the same might not happen," the official said. While the US Federal Reserve has lowered the bank rate by 275 basis points to 3.75 per cent since January to revive its economy, the RBI has lowered its bank rate by just 100 basis points in February and March. Industry has also been clamouring for lower rates, in line with trends overseas to help reverse a slowdown. Analysts say the RBI has enough leeway to reduce rates -- inflation is benign, the rupee is fairly stable and lower rates overseas mean a domestic reduction is less likely to affect foreign capital inflows. A Reuters poll released on June 29, showed that 11 of 14 bankers, primary dealers and analysts expected the Reserve Bank of India to lower the bank rate by 50 basis points. The remaining three expected a cut of 50-100 basis points. All the respondents said the RBI would reduce the bank rate before end of September. The official said the RBI was optimistic about growth in the current financial year due to expectations of a good monsoon and better farm output. Earlier, RBI Governor, Bimal Jalan told reporters that he expected the economy to grow at 6.0-6.3 per cent in 2001-02, unchanged from a forecast he made in April. Provisional data released by the government last month showed that the economy had expanded by just 5.2 per cent in 2000-01, down from an earlier estimate of six per cent, leading to concerns the economy was in worse shape than expected.
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