The minutes of the monetary policy committee indicate that there is a majority view that policy, henceforth, will target growth. This means that there will be a tendency for interest rates to come down even further over time. The repo rate was reduced by 25 bps in the Feb policy, and it is expected there could be two more cuts during the course of the year, though the timing will have to be aligned with the inflation scenarios. It has been assumed that inflation will keep trending downwards, and a normal monsoon would be the norm this year too. More importantly, core inflation has been low and stable, which has given more confidence to the committee to take this stance.

But an interesting observation is that post the policy announcement, there have been few moves by banks to lower the deposit rate as well as the MCLR (marginal cost lending rate). The EBLR (external benchmark lending rate), which holds for individual loans as well as those to MSMEs, should ideally have come down by 25 bps. However, this has not necessarily been the case, and several banks have chosen not to do so and increased the mark-up or spread over the repo rate. From the point of view of borrowers, rates have remained virtually unchanged.

The main issue is deposit rates. Banks have already been challenged all through the year in terms of garnering deposits. The relatively better returns in the capital market have caused some migration of savings to mutual funds. Those with........

© Free Press Journal