Endorsing Finance Minister P. Chidambaram’s call to banks to pass on the benefit of rate cuts to customers, RBI Governor D. Subbarao on Thursday said the central bank is also “very conscious” of the need to be supportive of economic growth.
A day after Chidambaram nudged banks to cut minimum or base lending rate in line with periodic interest rate cuts being made by RBI, Mr. Subbarao said lending rates have be to reduced to attract investments. “When the Reserve Bank calibrates its short term policy interest rate, the expectation in the monetary transmission will take place and the banks should respond by calibrating the lending rates. Some banks have responded but some have not.
“There are several reasons for monetary transmissions not being agile as it should be. So, in a way, the Reserve Bank is conscious of the need of monetary policy transmission taking place. Because it is important that banks respond by calibrating their lending rates in order to attract investments,” he said at a press conference in Chennai.
On Chidambaram’s message to RBI to be supportive of growth when deciding on monetary stance, he said, the central bank is conscious of it and will balance it with inflationary concerns.