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    RBI has cut rates by 110 bps since April, but average lending rates goes up 8 bps: Report

    Synopsis

    Economic growth has fallen to a six-year-low of 5% in the June quarter and is widely expected to slip further.

    RBI also reiterated its call for a 0.25 percent cut in the key rates in the December policy, which will be followed by a 0.15 percent cut in February.
    Despite the Reserve Bank making credit cheaper, lending rates are rising for borrowers after accounting for inflation and falling economic growth, a foreign brokerage said on Monday.

    The weighted average lending rate in the system is up 0.08 percent since April, economists at Bank of America Merrill Lynch said in a report.

    Economic growth has fallen to a six-year-low of 5 percent in the June quarter and is widely expected to slip further with almost all key components of the economy contracting or falling since the first three months. The RBI has responded by cutting rates by 110 basis to a nine-year-low of 5.40 percent since April courtesy low inflation.

    The RBI has been blaming banks for slower transmission of its policy moves into their lending rates and continuously nudging them to cut more, so that credit pick up can increase to help the broader growth. It has also helped make adequate liquidity available.

    "Growth is still falling as real lending rates are still rising," the brokerage report said. Real lending rate is the number after calculating for inflation.

    In their note, the analysts said the weighted average lending rate, which is the aggregate of the interest paid on all the debt, is up because of higher money supply and credit demand are unable to ensure banks reduction in marginal cost of funding based lending rates, which are typically applicable for new loans.

    Among the solutions to push growth up, the report said the monetary authority and the finance ministry will have to pull down average lending rates through measures like starting a 2 percentage points loan subvention done to small businesses, which would cost Rs 21,100 crore next fiscal year and also a reduction in the cash reserve ratio by 0.25 percent by the RBI in February.

    It also reiterated its call for a 0.25 percent cut in the key rates in the December policy, which will be followed by a 0.15 percent cut in February.

    (Catch all the Business News, Breaking News Events and Latest News Updates on The Economic Times.)

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    35 Comments on this Story

    Kishore Shivani312 days ago
    ON USA IN 1967 LEFTIST STUDENTS WERE FIRED UPON IN MIT AND MIT WAS CLOSED FOR ONE SEMESTER IN CHIMA IN TINNANAM SQUARE THOUSANDS OF STUDENTS WERE BULLDOZED UNDER TANKS . IN
    HONGKONG YESTERDAY THE STUDENTS WERE HANDCUFFED AND TAKEN AWAY ALL FOR PROTESTING WE SHOULD METE OUT THE SAME TREATMENT TO PARTICULARLY JNU STUDENTS AND EVEN JHADAVPUR UNIVERSITY STUDENTS
    Ramesh Shah312 days ago
    Mr.n. N Katha..,. you are very much to the point.... PEOPLE have lost faith N confidence in the Government........ for 3 years with 50 PC work left has made PEOPLE Lazy N without zeel to work. literally everybody is without any kind of Enthusiasm.,....
    Kishore Shivani312 days ago
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