Bankers have reacted positively to the RBI move to cut the cash reserve ratio (CRR). Chanda Kochhar, Managing Director & CEO, ICICI Bank, said the reduction was a positive step as it would help ensure that systemic liquidity remained in the comfort zone. ``Given the comfortable liquidity and the recent reduction in deposit rates by banks, interest rates, in general, could be expected to trend downwards gradually,” she added.
According to M. Narendra, Chairman and Managing Director, Indian Overseas Bank, the objective behind the CRR cut could be two-fold. For one, it would enable banks to meet the expected surge in credit demand following the unleashing of a spate of long-pending reforms to re-ignite growth. For another, the release of additional funds when the liquidity was already comfortable might help banks effect selective cuts in rates, particularly for interest-sensitive sectors.
``The RBI decision to keep the repo rate unchanged but reduce the cash reserve ratio added further to the perception that the pace of policy action has picked up in order to reduce negative sentiment surrounding India,’’ said Standard Chartered Bank in a statement. “We do not expect the RBI to cut rates for the rest of 2012,’’ it added.
“Our outlook is bullish. Liquidity infusion of Rs. 17,000 crore, along with the multiplier effect (M3), will lead to liquidity injection and softening of interest rate to some extent.” said Joydeep Sen, Senior Vice-President, Fixed Income, BNP Paribas Wealth Management. “Net-net, we maintain the view that broadly the RBI is in an easing cycle; the extent and timing of rate action would depend on how the variables (growth, inflation, et al) shape up,” Mr. Sen added.
“If the government continues to show the resolve to reduce fiscal deficit and address supply-side bottlenecks, it will pave the way for monetary easing in the coming months,” said Crisil in a report. “The CRR cut could be seen as a part of the overall policy push to boost investor sentiment. Given sticky inflation trends and upside to global commodity prices, the monetary policy direction remains uncertain going forward,” said Santosh Kamath, CIO, Debt, Franklin Templeton Investments India.
Harsh Pati Singhania, President, International Chamber of Commerce, was hopeful that the reduction in CRR would induce banks to reduce their lending rates further.
“With inflation still uncomfortably high, and the risk of rising inflationary expectations still elevated, this was the right rate outcome,” said Tarun Kataria, Chief Executive Officer, Religare Capital Markets.