Amidst speculations of a rift between the government and the Reserve Bank, the latter, taking a practical approach, preferred to hold the rate at which it lends funds to banks on short-term basisat 6.25%. But the SLR (Statutory Liquidity Ratio, a portion of deposits that banks have to invest in approved securities) was reduced to 20% from 20.50%, that would free up funds for banks to some extent that can be used for lending.
The government wanted the rates to be lowered in the hope that it may push the slackening growth northwards. But the RBI decided to wait and watch considering a host of factors that are lined up over the rest of the financial year, including the gargantuan GST rollout whose repercussions maybe difficult to foresee.
While the market across various sectors and segments are sceptical over the positives and negatives of the GST rates’ implications, inflation may play truant which perhaps is the most worrying factor to lower the rates at this juncture.
Cause for concern
The inflation level in the foreseeable future is not comfortable due to other reasons as well such as confusion over monsoon predictions and the implementation of the Pay Commission recommendations on house rent allowance for Central government employees. The bulging stressed assets too is a cause of concern for the central bank.
The only good news on the home loan lending front is that the risk-weight in certain buckets have been lowered that may prompt banks to lend more freely, particularly home loans up to Rs. 30 lakh.
For the rest of the year the interest rates may continue to hover in the current range and if any reduction indeed happens, it would be a bonus for borrowers.
