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Jalan rules out more rate cuts for now

New Delhi, Jan. 10: Reserve Bank of India governor Bimal Jalan today hinted there will be no further cut in the bank rate as he feels the “current interest rates are soft” enough.

“The interest rates are soft,” Jalan told newspersons on the margins of a seminar on Emerging Global Trends and Learnings for India organised for the Indian diaspora which is holding a conclave here. However, he declined to comment on the ‘interest rate outlook’.

Two months back, the country’s central bank in its credit and monetary policy had slashed the bank rate (the bench mark at which RBI lends to commercial banks) by 25 basis points to 6.25 per cent while the repo rate — the rate at which RBI borrows from banks — was reduced by the same margin to 5.5 per cent. The measures were designed to force a softer credit rate regime.

Asked if the RBI will go in for a further cut in the repo rate, Jalan replied in the negative. “There is no proposal for a repo rate cut,” Jalan said.

Analyst said the move to keep interest rates steady will for once benefit small investors and pensioners (retired persons) instead of the corporate sector which, along with the finance ministry, has been clamouring for further rate cuts.

Interest rates are down to 7 per cent from 13 per cent levels witnessed only a couple of years ago and groups representing pensioners and several political parties have been agitating against any further rate cut. In fact, they are demanding higher deposit rates for senior citizens as a hedge against inflation.

“The critical issue is demand for funds rather than cost of funds... demand is weak, which should justify rate cuts. But empirical evidence suggests that rate cuts have not helped push credit offtake,” K. K. Sengupta, a leading merchant banker, said.

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