Expect banks to cut lending rates by 50 bps: FinMin sources

The Finance Ministry expects banks to pass on the rate cut to borrowers, by slashing lending rates by 50 basis points, reports CNBC-TV18, quoting sources in the Finance Ministry.

The RBI today cut the benchmark repo rate by 25 basis points ahead of its February policy review, surprising bond and stock markets positively.

Some banks have begun trimming deposit rates immediately, but are yet to announce similar cuts in lending rates.

At the media briefing post the December credit policy, RBI Governor Rajan had said that banks were not cutting rates despite easing of liquidity conditions.

Excerpts from a story published on December 2, after the credit policy:

“It is not my job to tell the banks what to do. All I am saying that even though rates have come down, they have not passed it on,” he said.

Rajan said that it was the efforts of the RBI and the government that had helped bring down yields on long term bonds by 60-70 points, reflecting lower inflationary expectations.

“So the transmission process is still not working as ...as...you know.. as significantly therefore....you know...if past fall in short term rates have not been passed through, an additional rate cut is only a mild chance (of rates being passed through). I do believe that there is a signaling effect and I do believe that once banks are confident that rates will come down and stay down, they will start passing it,” he said.