Union Bank of India on Thursday reduced the base rate by 25 basis points (bps) from 10.25 per cent to 10 per cent with effect from January 27, 2015.
This indicates that more banks are likely to reduce deposit rates.
“The Bank has also reduced interest rate on deposits in various buckets under retail and bulk deposits from 10 bps to 50 bps,” said Union Bank of India in a press release here.
In surprise move, the Reserve Bank of India (RBI) cut the indicative short term policy rate (Repo) by 25 basis points from 8 per cent to 7.75 per cent on Thursday.
This is likely to open the rate cut cycle by the central bank. “The RBI rate cut signals the turnaround in the economy to the positive side,” said S. Ramasamy, Chief Investment Officer- Debt, LIC Nomura Mutual Fund.
“This may be followed up by rating agencies for a rating upgrade for India which will propel more FII flows into the country making the Indian Currency stronger and stable. With the downward trend in the commodity prices the rate cut will boost Investment and consumption which is positive for Growth,” Mr. Ramasamy added.
“The RBI cut the repo rate 25 basis points sending the capital markets on an upswing. While the timing was a pleasant surprise the yields in the fixed income market were signaling softer yields for some time,” said Tushar Pradhan, Chief Investment Officer, HSBC Global Asset Management, India.
Mr. Pradhan said that the current upbeat mood is supported by the recently announced lower Consumer Prices Index (CPI) number and the expectation of longer term softness continuing in commodities, especially crude oil.
“This rate cut, while not significant on a basis point criteria, can be taken by the markets as a signal to a rate lowering cycle, said Mr. Pradhan, adding, “This also signals a certain confidence that the RBI is showing in longer term trends on fiscal front and a leading signal of a victory over the inflation dragon.”
