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RBI thumbs nose at FM; rates won’t fall for now

Wednesday, 31 October 2012 - 9:30am IST | Place: Mumbai | Agency: DNA
Duvvuri Subbarao deftly sidestepped a North Block bid to hustle an interest-rate cut on Tuesday.

Duvvuri Subbarao deftly sidestepped a North Block bid to hustle an interest-rate cut on Tuesday. The Reserve Bank of India (RBI) governor, instead, did something far cannier — he proffered a cash reserve ratio (CRR) cut of 25 basis points so as to not to seem totally ignoring his boss, finance minister P Chidambaram — and then went on to practically negate the liquidity advantage by increasing by 75 basis points the money banks have to keep aside for restructured loans.

Despite the pressure tactics of Chidambaram over the last six weeks, the central bank has chosen to keep its eye on inflation even as it subtly asked the government to go beyond lip service in terms of fiscal reforms.

A miffed Chidambaram said the government would “walk alone” to face the challenge of reviving the Indian economy, if it has to. But he was not done cribbing. “Sometimes it is best to speak, sometimes (it is best) to remain silent. This is the time for silence.”

The upshot of it all? Lending rates are not coming down immediately, said Chanda Kochhar, managing director and CEO of ICICI Bank. Aditya Puri, her peer at HDFC Bank, agreed.

But, many other bankers said they see interest rates coming down between the end of the year and the beginning of the next.

In this context, financial planners suggest those who had missed the bus on fixed deposits (FDs) in September may lock into them now, preferably in a longer tenure to avoid reinvestment risks.

But Sumeet Vaid, founder & CEO of Ffreedom Financial Planner, advises one shouldn’t rush to lock in an FD; do so only if you planned to. “This does not mandate a knee-jerk reaction or any alteration in your financial plan otherwise,” he said.


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