The central bank has raised concerns on inflation, citing upside risks from higher fuel and food, which, bankers and analysts believe, may prolong the wait for a rate cut
Your Equated Monthly Installments (EMIs) on home loans and car loans are unlikely to come down soon as the Reserve Bank of India (RBI) decides to keep policy rates unchanged. The central bank has raised concerns on inflation, citing upside risks from higher fuel and food, which, bankers and analysts believe, may prolong the wait for a rate cut.
Since January 2015, policy rates have seen a 2% drop and plateaued with a 0.25% cut to a six-and-a-half-year low in August. Soon after the monetary policy review was announced on Wednesday, Bank of Baroda said that it reviewed its lending rates and decided to retain them at existing levels. It clarified that it does not have any mark-up over its marginal cost-based lending rate (MCLR) for the best-rated customers and its home loans are priced at 8.30%, irrespective of the quantum of the loan for a tenure of 30 years.
Venkat Nageswar, managing director, global markets, State Bank of India (SBI), said, "Lending rates can still go down further if banks reduce their deposit rates as it's a marginal cost formula. But without further cuts, the downside in MCLR is limited."
Other bankers also hinted that since credit growth is higher than deposit growth, the cost of money will climb. For the banking sector as a whole, credit growth is slightly higher than deposit growth, signaling an end to easy liquidity conditions. "Taking a cue, some banks increased the rates on wholesale deposits. Both domestic and global growth is on a rising trend. However, higher growth overseas also carries the risks of upward movements in commodity prices, not really good news for a major oil importer like India," says Dinabandhu Mohapatra, MD & CEO, Bank of India.
Five members of the monetary policy committee (MPC) voted to keep rates unchanged, with one voting for 0.25% cut in the repo rate, the cost at which the central bank lends overnight money to the banks. The meeting took place at a time when the wholesale prices based inflation in October shot up to a six-month high of 3.59%. The retail inflation (Consumer Price Index) for October rose to a seven-month high of 3.58%.
The RBI's survey of households showed inflation expectations firming up in the latest round for both three months ahead and one year ahead horizons. Farm and industrial raw material costs also rose in October to force RBI to remain aggressive.
Firms responding to the RBI's Industrial Outlook Survey also expect to pass on the increase in input prices to their output prices. Turning to other costs, wage growth in the organised sector edged up, while rural wage growth weakened, particularly in agriculture, all of which will add to the cost of both banks and companies.
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Other bankers also hinted that since credit growth is higher than deposit growth, the cost of money will climb. For the banking sector as a whole, credit growth is slightly higher than deposit growth, signaling an end to easy liquidity conditions. "Taking a cue, some banks increased the rates on wholesale deposits. Both domestic and global growth is on a rising trend. However, higher growth overseas also carries the risks of upward movements in commodity prices, not really good news for a major oil importer like India," says Dinabandhu Mohapatra, MD & CEO, Bank of India.
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