Bankers, on Tuesday, said the liquidity tightening measures announced by the Reserve Bank of India (RBI) were temporary, and hoped they would be rolled back once the rupee stabilised.
“These measures are temporary, to calm down volatility. We are not taking that these measures will be long-term. I think once the rupee stabilises, these steps should be largely rolled back,” State Bank of India Chairman Pratip Chaudhuri said.
The RBI, on Monday, announced a slew of measures such as raising the cost of borrowing by banks by two percentage points to 10.25 per cent, and announcing sale of bonds worth Rs.12,000 crore through open market operations to suck liquidity to check rupee slide. The rupee had earlier this month touched a life time low of 61.21 to a dollar.
On the impact of RBI measures on interest rates, Mr. Chaudhuri said: “Impact on loan growth depends on how long these measures stay. Deposit rates do not have such a close correlation with the money market.’’
“If you look at the RBI measures, they were meant to stabilise the rupee by curbing volatility in the market, and probably to curb speculative transactions. To my mind, it appears like a short-term measure, and to read in between that it is a precursor to some long-term policy...(is wrong),” Bank of Baroda Chairman and Managing Director S. S. Mundra said . He was talking to reporters after attending a meeting with RBI officials on banking frauds.
The spike in LAF (liquidity adjustment facility) borrowing was a temporary phenomenon, Mr. Mundra said.
“May be (till) the trading positions are wound up, it may create some kind of spike in the basket. But very soon, it will not look like that,” he said. Mr. Mundra said these measures would not create shortage of liquidity to productive sectors.
Bank of India Chairman and Managing Director V. R. Iyer said these were short-term measures and that the bank would not roll-back its recent reduction in the Base Rate.
“The measures taken by the RBI are very temporary in nature. It is not going to be there for long. We are not reconsidering our decision to change the base rate,” he said.
Treasury head at IDBI Bank N. S. Venkatesh said the RBI’s steps were in the right direction and they would reduce speculation in the rupee.
UCO Bank Chairman Arun Kaul said the RBI’s step was a temporary measure, and the bank had to wait for some more time to decide on the impact of this move.
“The objective of the RBI action is to compress liquidity. The implications are same as repo rate hike. The RBI has opted for that time which is slack in terms of credit demand,” Mr. Kaul said.
The RBI is scheduled to announce its first quarter monetary policy review on July 30. — PTI
Chennai Special Correspondent adds:
Chairman and Managing Director of Indian Overseas Bank M. Narendra said, “the measures, we feel, are of temporary nature and are expected to last only for a short-term’’.
While the move was expected to strengthen the rupee, it might not have any major negative impact on interest rates, he felt. ``
“The lending rates of the banks do not require any upward revision,’’ he added.