Reserve Bank of India Expected to Cut Rates on Friday

The Reserve Bank of India faces pressure to cut lenders’ reserve requirements as banks struggle to woo deposits and resist passing on interest-rate reductions.

Governor Duvvuri Subbarao will lower the repurchase rate for a third time this year to 7.25 percent from 7.5 percent on May 3, according to 22 of 26 analysts in a Bloomberg News survey. One predicts 7 percent and the rest no change. Five of 24 in another survey expect a cash-reserve-ratio cut to 3.75 percent from 4 percent, with the rest forecasting no change.

Lenders from State Bank of India to ICICI Bank Ltd., facing close to the weakest deposit growth in a decade, have lowered borrowing costs as little as 0.25 percentage point since April last year. The central bank cut the policy benchmark a full point from 8.5 percent in the same period, and JPMorgan Chase & Co. said wider steps may be needed to spur cheaper credit.

“If the Reserve Bank of India is serious about more broad- based monetary transmission, it will need to cut lenders’ reserve requirements or pick up the pace of bond purchases to inject liquidity,” said Sajjid Chinoy, an economist at JPMorgan Chase in Mumbai. “Barring this, rate cuts will continue to be symbolic.”

The yield on the government note maturing June 2022 has slid to 7.73 percent from 7.90 percent since the last rate cut on March 19, on bets another reduction is probable to fight the weakest economic growth since 2003. The rupee has strengthened 1.1 percent versus the dollar this year, while the BSE India Sensitive Index has dropped 0.4 percent.

Bloomberg

This article is for general information purposes only. It is not investment advice or a solution to buy or sell securities. Opinions are the authors; not necessarily that of OANDA Corporation or any of its affiliates, subsidiaries, officers or directors. Leveraged trading is high risk and not suitable for all. You could lose all of your deposited funds.