A good decision, says Canara Bank CMD

Mr S. Raman, Chairman and Managing Director, Canara Bank: It is a good and decisive move by the RBI. Given the limited space available, the RBI has come up with a good decision. Transmission of rate cut to customers should be possible in the next few weeks. But it also depends on reduction in deposit rates. Deposit rates have to come down first as the cost of deposits had increased significantly; hopefully it would happen very soon. Our ALCO will take a call on interest rates on lending and deposits.

Ms Upasna Bhardwaj, Economist, ING Vysya Bank: The RBI’s move clearly reflects its intention towards propelling growth as core inflation provides some signs of relief. However, latent factors continue to provide upside risks to inflation. Such an aggressive step amid persistence of price pressures is likely to keep the RBI on pause in the mid-quarter review in June and subsequently monitor the growth-inflation dynamics to determine its path.

With the current action, we expect the banks to pass on the change via reduction in lending rates, though only gradually.

Mr M. Narendra, Chairman and Managing Director, Indian Overseas Bank: It is a very positive move by the RBI, which would facilitate investment activity. It is a sentimentally positive move. Unless the inflation gets further reduced, I don’t see any further rate cut by the RBI.

Banks have to first work at reduction in deposit costs, and then base rate will also come down. But I feel that it will take at least three months’ time for deposit rates to be moderated, it cannot be done immediately.

The RBI’s repo rate cut is only a signal, and that doesn’t lower the cost of funds automatically. But this signal will excite the investment activity.