NEW DELHI: India’s Finance Minister Palaniappan Chidambaram yesterday said he wanted banks to cut lending and deposit rates by 50 basis points, knocking bond yields to 11-month lows on speculation of an interest rate cut at the Reserve Bank of India (RBI) policy review on January 29.
State-run bank heads who met the minister yesterday said interest rates were headed lower and the central bank could signal a move towards softer monetary policy later this month.
"I would like deposit, lending rates to come down by 50 basis points," Chidambaram said after meeting the bank chiefs.
"If monetary policy is supportive, it is possible to look at stable, or perhaps some moderation," Chidambaram said.
"We look to moderate rates in the medium term."
Banks raised interest rates by 200-250 basis points last year, after the RBI had raised rates five times since June 2006 and as it tightened banks’ reserve requirements through the year, which limited the funds available for loans.
Bank lending has slowed, with credit growth moderating to an annual rate of 22.2 per cent as on December 7, down from rates of 30pc earlier last year and below the central bank’s comfort zone of 24-25pc for the 2007/08 fiscal year ending in March.
State bank officials said the period of tight monetary policy was over, and interest rates were set to fall through this year as the finance minister wanted to stimulate demand and investment, according to sources.
"I have to lower deposit rates and this will help lower lending rates. We will definitely be doing it. We have to catch up (on loans) in the Jan-March quarter," said Central Bank of India chairman H A Daruwalla.
Chidambaram said there was a need to moderate lending to the real estate sector, and that banks needed to make more credit available for investment and consumption.
