Business
Monetary policy: Most bankers see interest rates softening

Mumbai, July 27 (PTI): Ahead of the Reserve Bank's quarterly review of monetary policy on July 31, many bankers feel moderate inflation may put a pause on rate hikes, brightening the prospects of a cut in home and personal loan rates.

With many bankers asserting that interest rates have more or less peaked in the country, there are indications that the central bank might not be hawkish in its stance, particularly with inflation falling to 4.27 per cent for the week ended July 7 from over six per cent in April.

Though the central bank's efforts to suck out excess liquidity in the busy season credit policy in April had borne fruit, there is still some liquidity overhang which may result in the RBI's tweaking the cash reserve ratio (CRR), some bankers feel.

"There might be some action to suck out liquidity - a hike in the cash reserve ratio (CRR) is a possibility," Development Credit Bank's Head, Treasury, K Harihar, said here.

"The hike, if it is resorted to, will not be intended to increase rates, but only to suck out liquidity and stabilise inflows," he said.

There is definitely a softening visible in interest rates, but this will be more market-led than regulator-driven, Harihar said, adding that "the words and tone of the policy need to be observed before one can take a definite view."

Yes Bank's Managing Director and CEO, Rana Kapoor, said the policy would be substantially intact and was likely to mirror the previous ones. Interest rates will soften, he said, adding that "deposit rates are likely to come down to single-digits." Banks' prime lending rates (PLRs) too are likely to head downwards, he said.

Bank of Baroda's (BoB) Chief, Anil Khandelwal, said that interest rates would soften, but he expected it to first happen in the case of deposit rates.

"An overall softening should be preceded by a softening of deposit rates," Khandelwal said.

Asked whether BoB planned to prune its deposit rates, he said, "We cannot be an exception to the trend in the market."

There is unanimity on the success of the RBI's measures to rein-in inflation and curb flows to speculative activities.

"The RBI achieved a perfect balance in reining-in inflation as well as in preventing flows to speculative businesses," Kapoor said.

The country's leading home loan lender, HDFC, too feels that interest rates have peaked.

"Interest rates have peaked and there does not appear to be a likelihood of it going up further. Will they come down immediately? It is difficult to guess," HDFC Managing Director, Keki Mistry, said.

While there is a near unanimous perception about rates softening, home loan borrowers may not experience an immediate respite.

Leading public sector bank Union Bank of India, which lowered its deposit rates by 0.50 per cent effective August 1, does not see a reduction in home loan rates in the near future.

"We reduced home loan rates just three months back and there is no immediate plan to further reduce them," its chief, M V Nair, said.